Upload
larrybirdy
View
124
Download
5
Embed Size (px)
DESCRIPTION
Syllabus
Citation preview
University of the PhilippinesCollege of Law
Taxation 1, Fridays 3 p.m. to 6 p.m. (Prof. Carina C. Laforteza)First Semester SY 2013-2014
FUNDAMENTALS OF TAXATION
A. Meaning and Nature of Tax(es)
1. “Taxation” and “tax” defined
Commissioner of Internal Revenue v. Algue, Inc. G.R. No. L-28896. February 17, 1988
2. Essential characteristics of taxes
3. Tax as distinguished from other forms of impositions
a. Tax v. license and regulatory fee
Osmeña v. Orbos G.R. No. 99886. March 31, 1993Philippine Airlines Inc. v. Edu G.R. No. L-41383. August 15, 1988Progressive Development Corporation v. Quezon City G.R. No. L-36081. April 24, 1989Compañia General de Tabacos de Filipinas v. City of Manila G.R. No. L-16619. June 29, 1963Angeles University Foundation v. City of Angeles, et al., G.R. No. 189999. June 27, 2012
b. Tax v. special assessment
Sec. 240 Local Government Code RA 7160Republic v. Bacolod Murcia G.R. No. 19824-26. July 9, 1999
c. Tax v. toll
Sec. 155 Local Government Code
d. Tax v. tariff and customs duties
Garcia v. Executive Secretary G.R. No. 101273. July 3, 1992
e. Obligation to pay tax v. obligation to pay debt
Article 1279, New Civil Code of the PhilippinesCaltex v. Commission on Audit G.R. No. 92585. May 8, 1992Francia v. Intermediate Appellate Court G.R. No. L-67649. June 28, 1988
1
Republic v. Mambulao Lumber Company G.R. No. 17725. February 28, 1962 Re: internal revenue taxes cannot be the subject of the set-off or compensationPhilex Mining v. Commissioner of Internal Revenue G.R. No. 125704. August 28, 1998Domingo v. Garlitos G.R. No. L-18994. June 29, 1963
B. Purposes/Objectives of taxation
1. Revenue-raising
PAL v. Edu, ibid . Osmeña v. Orbos, ibid .
2. Non-revenue/special or regulatory
Republic v. Bacolod-Murcia Milling Co. G.R. No. L-19824-26. July 9, 1999Tio v. Videogram Regulatory Board G.R. No. 75697. June 18, 1987Caltex v. Commission on Audit, ibid.Esso Standard Eastern v. Commissioner of Internal Revenue G.R. No.L-28508-9. July 7, 1989
C. Theory and Basis of Taxation
1. Necessity Theory
Phil. Guaranty Co., Inc. v. Commissioner of Internal Revenue G.R. No.L-22074. April 30, 1965Commissioner of Internal Revenue v. Algue ibid.Ferdinand R. Marcos II v. Court of Appeals G.R. No. 120880. June 5,1997NPC v. City of Cabanatuan G.R. No. 149110. April 9, 2003
2. Benefits-received TheoryGomez v. Palomar G.R. No. L-23645. October 29, 1968Lorenzo v. Posadas G.R. No. 43082. June 18, 1937
D. Aspects of taxation
1. Levy/Imposition by the legislative body
2. Collection / Administration / ways / methods of collection
“pay as you earn” “pay as you go” withholding system“pay as you are assessed”“pay as you file”
E. Nature and Scope of and Limitations on the Power of Taxation
2
1. Power to tax as differentiated from the powers of eminent domain and police power
2. Essential characteristics of taxation
a. Inherent in sovereignty
Roxas v. Court of Tax Appeals G.R. No. L-25043. April 26,1968
b. Exclusively legislative in nature
c. Subject to inherent and constitutional limitations
3. Inherent Limitations
a. Purpose must be public in nature
Pascual v. Secretary of Public Works G.R. No. L-10405December 29, 1960Caltex v. Commissioner of Internal Revenue, ibid.Gaston v. Republic Planter G.R. No. 77194, March 15, 1988Planters Product, Inc. v. Fertiphil Corp. G.R. No. 66006.March 14, 2008
b. Prohibition against delegation of taxing power
i. Extent of the legislative power to tax
Tan v. Del Rosario G.R. No. 109289 and G.R. No. 109446. October 3, 1994Sison v. Ancheta G.R. No. L-59431. July 25, 1984 Kapatiran v. Tan G.R. No. 81311, 81820, 81921, 82152. June 30, 1988
ii. Exceptions from the prohibition
(a) Delegation to local governments
Sec. 5 Art. X, ConstitutionLocal Government Code RA 7160 Book IIBasco v. PAGCOR G.R. No. 91649. May 14,1991
(b) Delegation to the President
Sec. 28(2) Art. VI, ConstitutionSec. 401 Tariff and Customs CodeGarcia v. Executive Secretary ibid.Abakada Guro Party List v. Ermita, G.R. No.168056. September 1, 2005
3
Feliciano, Deconstruction of Constitutional Limitations and the Tariff Regime of the Philippines: The Strange Persistence of a Martial Law Syndrome, 84 Phil L.J. 311 (2009).
(c) Delegation to administrative agencies
Maceda v. Macaraig G.R. No. 88291. May 31, 1991; June 8, 1993Maceda v. ERB G.R. No. 96266. July 18, 1991Osmeña v. Orbos ibid.Commissioner of Internal Revenue v. Court of Appeals G.R. No. 119761. August 29, 1996
c. Exemption of government entities agencies and instrumentality
Sec. 24(c) NIRCExecutive Order 93 and Pres. Decree 1931Mactan Cebu International Airport Authority v. Marcos G.R. No.120082. September 11. 1996Manila International Airport Authority v. CA G.R. No. 155650July 20, 2006 Philippine Fisheries Development Authority v. CA G.R. No.169836. July 31, 2007GSIS v. City Treasurer of Manila,. G.R. No. 186242. December 23, 2009Philippine Fisheries Development Authority v. Central Board of Assessment Appeals et al. Lucena City, G.R. No. 178030, 15 December 2010. Republic of the Philippines represented by the Philippine Reclamation Authority v. City of Parañaque, G.R. No. 191109, July 18, 2012.
d. Limitation of international comity
Sec. 2, Art. II ConstitutionSec. 159 Local Government CodeTañada v. Angara G.R. No. 118295. May 2, 1997Commissioner of Internal Revenue v. Mitsubishi Corporation-Manila Branch C.T.A. E.B. No. 5. May 24, 2006
e. Limitation of territorial jurisdiction/personal jurisdiction
Commissioner of Internal Revenue v. British Overseas Airways Corporation G.R. Nos. 65773-74. April 30, 1987Iloilo Bottlers v. City of Iloilo G.R. No. L-52019. August 19, 1988Hopewell Power v. Commissioner of Internal Revenue C.T.A. Case No. 5310, November 18, 1998BPI v. CIR, G.R. No. 137002, July 27, 2006
4
Smith v. Commissioner of Internal Revenue C.T.A. Case No. 6268, September 12, 2002Commissioner of Internal Revenue v. Juliane Baier-Nickel G.R. No. 153793. August 29, 2006
4. Constitutional Limitations
a. Due process of law
Tan v. Del Rosario ibid.Sec. I, Art. III, ConstitutionSison v. Ancheta ibid.
b. Equal protection of the laws
Sec. I, Art. III, ConstitutionSison v. Ancheta, ibid.Villegas v. Hiu Chiong Tsai Pao G.R. No. L-29646. November 10,1978Tan v. Del Rosario, ibid.PHILRECA v. Secretary G.R. No. 143076. June 10, 2003
c. Uniformity and equity in taxationSec. 28(1) Art. VI, Constitution
(i) adoption of a progressive system of taxation
Tolentino v. Sec. of Finance, G.R. No. 115455.October 30, 1995
(ii) valid classification of taxpayers/subject or items to be taxed
Pepsi Cola v. City of Butuan G.R. No. L-22814. August 28, 1968Manila Race Horse Trainors Association v. DelaFuente G.R. No. L-2947. January 11, 1951Eastern Theatrical Co. v. Alfonso G.R. No. L-1104. May 31, 1949Shell v. Municipal Treasurer of Cordova G.R. No. L-6093. February 24, 1954Commissioner of Customs and the District Collector of the Port of Subic v. Hypermix Feeds Corporation, G.R. No. 179579, February 1, 2012
d. Prohibition against imprisonment for non payment of poll tax
Sec. 20 Art. III, ConstitutionCommunity tax v. poll taxSec. 156-164 Local Government Code RA 7160
e. Prohibition against impairment of obligation of contracts
5
Sec. 10, Art. III, ConstitutionSec. 11, Art. XII, ConstitutionCasanovas v Hord 8 Phil 125 (1907)Tolentino v. Sec. of Finance, ibid.
f. Prohibition against infringement of religious freedomSec. 5, Art. III, ConstitutionAmerican Bible Society v. City of Manila 101 Phil. 386Tolentino v. Sec. of Finance, ibid.
g. Prohibition re: appropriation of proceeds of taxation
The use of tax levied for special purpose
Sec. 29, Art. VI, ConstitutionOsmeña v. Orbos, ibid.Gaston v. Republic Planters Bank, ibid.
h. Prohibition against taxation of religious, charitable entities and educational entities
Sec. 28(3), Art. VI, ConstitutionAbra Valley College v. Aquino G.R. No. L-39086. June 15, 1988Lung Center of the Philippines v. Quezon City G.R. No. 144104. June 29, 2004
i. Prohibition against taxation of non-stock, non-profit institution
Sec. 4(3) Art. XIV ConstitutionSec. 4(4) Art. XIV, ConstitutionSec. 28 (3) Art. VI, ConstitutionSec. 24 (b) NIRCSecs. 27(B) and 30(H) of NIRC
Commissioner of Internal Revenue V. CA G.R. 124043. October 14,1998
j. Others
i. Grant of tax exemption
Sec. 28(4), Art. VI, Constitution
ii. Veto of appropriation, revenue, tariff bills by the president
Gonzales v. Macaraig G.R. No. 87636. November 19, 1990
iii. Non-impairment of the jurisdiction of the Supreme Court
Secs. 2 and 5(b), Art. VIII, ConstitutionSan Miguel Corp. v. Avelino G.R. No. L-39699. March 14,
6
1979
iv. Revenue bills shall originate from the House of Representatives
Sec. 24, Art. VI ConstitutionTolentino v. Secretary of Finance, ibid.
v. Infringement of press freedom
Sec. 4, Art. III ConstitutionTolentino v. Secretary of Finance, ibid.
vi. Grant of franchise
Sec. 11 Art. XII, ConstitutionTolentino v. Secretary of Finance, ibid.
5. Who may question the validity of a tax measure of expenditure of taxes – taxpayer’s suit
Lozada v. COMELEC G.R. No. L-59068. January 27, 1983Maceda v. Macaraig, ibid.Gonzales v. Marcos G.R. No. L-31685. July 31, 1975Renato V. Diaz and Aurora Ma. Timbol v. The Secretary of Finance and The Commissioner of Internal Revenue, G.R. No. 193007. July 19, 2011
F. Tax Systems
1. Classification
Sec. 28 (1), Art. VI, CONSTITUTION – Progressive system of taxation
Progressive system v. progressive rate of tax
Tolentino v. Secretary of Finance, ibid.
2. Basic principles of a sound tax system
Chavez v. Ongpin G.R. No. 76778. June 6, 1990
G. Classification of taxes
1. As to scope of the tax: National / local taxes
Benguet Corporation v. CBAA G.R. No. 100959. June 29, 1992
2. As to who shoulders the burden of the tax: Direct / Indirect taxes
Sec. 1 RA 7716 (Expanded VAT)Tolentino v. Sec. of Finance, ibid.
7
Philippine Acetylene v. Commissioner of Internal Revenue G.R. No.L-19707. August 17, 1967Maceda v. Macaraig G.R. No. 88291. June 8, 1993Commissioner of Internal Revenue v. John Gotamco G.R. No. L-31092. February 27, 1987Commissioner of Internal Revenue v. PLDT G.R. No. 140230.December 15, 2005Exxonmobil Petroleum and Chemical Holdings, Inc. Philippine Branch v CIR, G.R. No. 180909, January 19, 2011Diageo Philippines, Inc. v. CIR, G.R. No. 183553, November 12, 2012
3. As to the object or subject matter of the tax: Property / personal / poll or capitation / excise
Villanueva v. City of Iloilo G.R. No. L-26521. December 28, 1968Commissioner of Internal Revenue v. Court of Appeals G.R. Nos. 104151and 105563. March 10, 1995)Association of Customs Brokers v. Municipal Board G.R. No. L-4376.May 22, 1953
4. As to the manner of computing the tax
a. Ad valoremb. Specific
We Wa Yu v. City of Lipa G.R. No. L-9167. September 27, 1956
5. As to graduation or rate
a. Proportional
Example: Real estate taxSec. 233 Local Government Code
b. Progressive
Example: Sec. 21(a) NIRCMeaning of “digressive tax rate”Tolentino v. Secretary of Finance, ibid.ABAKADA v. Ermita, ibid.Chavez v. Ongpin, ibid.
c. Regressive
H. Some Fundamental Doctrines in Taxation
1. Situs of Taxation
a. Meaning of situs of taxationb. Situs of subjects of taxation
8
Commissioner of Internal Revenue v. British Overseas AirwaysCorporation, ibid.Wells Fargo v. Collector of Internal Revenue G.R. No. 46720.June 28, 1940Tan v. Del Rosario, ibid.Sec. 42 NIRC
c. Multiciplicity of Situs
Collector of Internal Revenue v. de Lara G.R. Nos. L-9456 andL-9481. January 6, 1958Commissioner of Internal Revenue v. Juliane Baier-Nickel, ibid.
2. Double Taxation
a. Meaning of double taxation in the strict sense/in the broad sense
b. Instances of double taxation in its broad sense
Villanueva v. City of Iloilo, ibid.Commissioner of Internal Revenue v. Solidbank Corp. G.R. No.148191. Nov. 25, 2003Commissioner of Internal Revenue v. Citytrust Investment Phils., Inc. G.R. Nos. 139786 and 140857. September 27, 2006
c. Constitutionality of double taxation
City of Baguio v. De Leon G.R. No. L-24756. October 31, 1968Pepsi Cola Bottling Co. v. City of Butuan, ibid.Commissioner of Internal Revenue v. Manila Jockey Club, 108 Phil 281
3. Escape from Taxation
a. Shifting of tax burden
i. Ways of shifting the tax burden
ii. Taxes that can be shifted
Sec. 105 NIRC
iii. Meaning of impact and incidence of taxationRelations among impact, shifting, and incidence of a tax
b. Tax evasion
Elements of tax evasionRepublic v. Gonzales G.R. No. L-17962. April 30, 1965Commissioner of Internal Revenue v. Estate of Benigno TodaG.R. No. 147188. September 14, 2004
9
c. Tax avoidance
Delpher Trades Corp. v. IAC G.R. No. 69259. January 26, 1988Yutivo Sons Hardware v. CTA G.R. No. L-13203. January 28,1961Commissioner of Internal Revenue v. Lincoln Philippine LifeInsurance Company, Inc. G.R. No. 119176. March 19, 2002
d. Exemption from taxation
i. Meaning of exemption from taxation
Greenfield v. Meer G.R. No. 156. September 27, 1946Commissioner of Internal Revenue v. Magsaysay Lines,Inc. G.R. No. 146984. July 28, 2006
ii. Compared with/differentiated from other terms
(a) Tax remission/tax condonation
Juan Luna Subdivision v. M Sarmiento G.R. No. L-3538. May 28, 1952Surigao Consolidated Mining v. Collector G.R. No. L-14878. December 26, 1963
(b) Tax amnesty
Republic Act No. 9399 (March 20, 2007)Republic Act No. 9480 (May 24, 2007)Commissioner of Internal Revenue v. Court of Tax Appeals G.R. No. 108358. January 20, 1995Republic v. Intermediate Appellate Court G.R. No.69344. April 26, 1991People v. Castañeda, Jr. G.R. No. L-46881. September 15, 1988Pascual v. Commissioner of Internal Revenue G.R.No. 78133. October 18, 1988Commissioner of Internal Revenue v. Marubeni G.R. No. 13737. December 18, 2001 Asia International Auctioneers, Inc. v. CIR, G.R. No. 179115, September 26, 2012
(c) Zero-rating (VAT)
Sec. 106 NIRC
(d) Exclusion/deduction
iii. Kinds of tax exemption
10
Atlas Fertilizer v. Commissioner of Internal Revenue G.R.Nos. L-26686 and L-26698. October 30, 1980
11
Commissioner of Internal Revenue v. Phil. Ace Lines G.R.Nos. L-20960-61. October 31, 1968Caltex v. Commission on Audit, ibid.
iv. Nature of the power to grant tax exemption
Basco v. Pagcor, ibid.Maceda v. Macaraig, ibid.
v. Rationale/grounds for tax exemption
Tolentino v. Sec. of Finance, ibid.Maceda v. Macaraig, ibid. (1993)Davao Light v. Commissioner of Customs G.R. Nos.L-28739 and L-28902. March 29, 1972.Tan Kim Kee v. CTA G.R. No. L-18080. April 22, 1963NPC v. Presiding Judge G.R. No. 72477. October 16, 1990Davao Gulf v. Commissioner of Internal Revenue G.R. No.117359. July 23, 1998
vi. Nature of tax exemption
Philippine Acetylene v. Commissioner of Customs, ibid.Wonder Mechanical Engineering Corp. v. CTA G.R. No.L-22805. June 30, 1975PLDT v. City of Davao G.R. No. 143867. March 25, 2003and August 22, 2001Commissioner v. PAL, Inc. G.R. No. 180043. July 14, 2009Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, G.R. No. 188497. April 23, 2012
vii. Laws granting tax exemption/tax incentives
(a) Constitution
Art. 28(3) Art. VI, ConstitutionSec. 4(3,4) Art. XIV, Constitution
(b) National Internal Revenue Code
(c) Special laws
(d) Treaty/international agreement
I. Philippine Tax Laws and Regulations
1. Nature of Tax Laws
Hilado v. Collector of Internal Revenue G.R. No. L-9408. October 31,1956
12
Republic v. Vda. de Fernandez G.R. No. L-9141. September 25, 1956
2. Sources of Tax Laws
a. Constitutionb. National Internal Revenue Codec. Tariff and Customs Coded. Local Government Code Book II (RA 7160)e. Local tax ordinance/city or municipal tax codesf. Tax treaties/international agreementsg. Special lawsh. Decisions of the SC/CTAi. Revenue rules and regulations/Administrative rulings and opinions
Sec. 245 NIRCSecs. 511 and 519 Tariff and Customs CodeMisamis Oriental Association of Coco Traders, Inc. v. Department of Finance G.R. No. 108524. November 10, 1994
i. Validity of revenue rules and regulations
Tan v. del Rosario, ibid.Commissioner of Internal Revenue v. CA G.R. No. 104151and 105563. March 10, 1995, ibid.Phil. Petroleum Corp. v. Mun. of Pililia G.R. No. 90776.June 3, 1991Umali v. Estanislao G.R. Nos. 104037 and 104069. May29, 1992La Suerte Cigar & Cigarette Factory v. CTA G.R. Nos.L-36130 and L-36131. January 17, 1985Commissioner of Internal Revenue v. Seagate TechnologyG.R. No. 153866. February 11, 2005
ii. BIR Rulings
3. Interpretation/Construction of Tax Laws
Hilado v. Collector of Internal Revenue, ibid.
a. Rule when legislative intent is clear
Umali v. Estanislao, ibid.Lorenzo v. Posadas ibid.Commissioner of Internal Revenue v. Solidbank Corp.,ibid.
b. Rule when there is doubt
Collector of Internal Revenue v. La Tondeña G.R. No.L-10431. July 31, 1962
13
c. Provisions/laws granting tax exemptions
i. General rule
Commissioner of Internal Revenue v. CA G.R. No. 124043, ibid.Misamis Oriental Asso. v. Department of Finance, ibid.Commissioner of Internal Revenue of Customs v. Phil. Acetylene Company, ibid.Manila Electric Company v. Vera G.R. No. L-29987 andL-23847. October 22, 1975Benguet Corporation v. CBAA, ibid.Coconut Oil Refiners Association Inc. v. Torres G.R. No. 132527. July 29, 2005
ii. Exceptions
Maceda v. Macaraig, ibid.
4. Application of Tax Laws/Revenue Regulations and Rulings
a. General
Art. 2, Civil CodeUmali v. Estanislao, ibid.Lorenzo v. Posadas, ibid.Hijo Plantation v. Central Bank G.R. No. L-34526. August 9, 1988 Commissioner of Internal Revenue V. Filipinas Compania deSeguros G.R. No. L-14880. April 29, 1960Cebu Portland v. Collector of Internal Revenue G.R. No.L-20563. October 29, 1968Commissioner of Internal Revenue v. Rio Tuba Nickel MiningG.R. Nos. 83583-84. March 25, 1992
b. Application of revenue rules and regulations/rulings
Revenue Memo Circular 20-86Sec. 246 NIRCTuzon v. CA G.R. No. 90107. August 21, 1992Commissioner of Internal Revenue v. Mega General G.R. No.69136. September 30, 1988ABS-CBN v. Court of Tax Appeals G.R. No. L-52306. October 12, 1981Commissioner of Internal Revenue v. Court of Appeals G.R. No. 119761. August 29, 1966Commissioner of Internal Revenue v. Telefunken Semiconductor G.R. No. 103915. October 23, 1995Commissioner of Internal Revenue v. Benguet Corporation G.R. Nos. 134587 and 134588. July 8, 2005Commissioner of Internal Revenue v. Michel Lhuillier Pawnshop G.R. No. 150947. July 15, 2003
c. Effectivity and validity of tax ordinances
14
Hagonoy Market Vendors Asso. V. Municipality of Hagonoy G.R. No. 137621. February 6, 2002Jardine Davies Insurance Brokers, Inc. v. Aliposa G.R. No. 118900. February 27, 2003
4. Mandatory and directory provisions of tax laws
Roxas v. Rafferty G.R. No. L-12182. March 27, 1918Aragon v. Jorge G.R. No. L-2678. December 29, 1949Pecson v. Court of Appeals G.R. No. 105360. May 25, 1993
15
INCOME TAXATION
A. INTRODUCTION
Fisher v. Trinidad G.R. No. 17518. October 30, 1922
1. History of the Philippine Income Tax Law
Madrigal v Rafferty, G.R. No. 12287. August 7, 1918.
2. Meaning of Income
Eisner v Macomber, 1920, 252 US 189, 40 SCt 189, 64 Led, 521, 9ALR 1570
3. Classification of income taxpayers
4. General Principles of Income Taxation
Sec. 23, NIRC
B. TAX ON INDIVIDUALS
1. Kinds of individual taxpayers
Sec. 24, Sec. 25
2. Definition of each kind of taxpayer
Sec. 22
a. Resident citizens and resident aliens (Sec. 5, Sec. 6, RR-2, RR 2-98, April 17, 1998)
b. Non-resident citizens (RR 1-79 and RR 9-99, April 19, 1999, definition and requirements for information return)
c. Non-resident aliens engaged in business in the Philippines
d. Senior Citizen Law, RA 7432, as amended by RA 9257 and RA 9994 Carlos Superdrug Corp. vs. DSWD, ibid.
Mercury Drug Corporation v. Commissioner of Internal Revenue. G.R. No. 164050. July 20, 2011
3. Kinds of income and income tax of individuals
a. Income subject to ordinary income tax
16
b. Income subject to final income tax – interests, dividends, royalties, awards, capital gains, on sale of shares, realty (RR 10-98, August 25, 1998, RR 8-98, August 25, 1998)
c. Compensation Income
5. Personal exemptions
Sec. 35
6. Premium payments on health and/or hospitalization insurance
(Sec. 34 (m))
6. Estates and Trusts
Sections 60-66 NIRC (Sec. 207-213, RR 2)
1. General rule on taxability: fiduciary or beneficiary
2. Personal exemption allowed
3. Decedent’s estate administrationRevocable trusts
4. Income for benefit of grantor
C. TAX ON CORPORATIONS
1. Definition of corporations
Sec. 22
Collector of Internal Revenue v. Batangas Transportation Co. G.R. No. L-9692. January 6, 1958Oña v. Commissioner of Internal Revenue G.R. No. L-19342. May 25, 1972BIR Ruling 317-92, October 28, 1992Obillos v. Commissioner of Internal Revenue G.R. No. L-68118. October 29, 1985
2. Classification of corporations and the tax rates
a. In general
Sec. 27-28
1. Domestic
2. Resident
3. Non-resident
17
b. Special corporations
1. Private educational institutions and non-profit hospitals
Sec. 4 [3] Article XIV, Constitution
2. Non-resident cinematographic film owner, lessor or distributor
3. International carriers
Commissioner v BOAC, ibid.United Airlines, Inc., v CIR, G.R. No. 178788, 29 September 2010
4. Non-resident owner of vessels
5. Non-resident lessor of aircraft, machineries and other equipment
6. Foreign currency deposit system/Offshore banking units
7. Petroleum service contractor and sub-contractor
PD 1354, PD 87
8. Enterprise Registered under Bases Conversion and Development Act of 1992 and Philippine Economic Zone Act of 1995. Clarification of coverage of 5% preferential rate by RR 20-2002, October 14, 2002, as amended by RR 2-2005 (February 8, 2005) amending RR 1-95 and RR 16-99.
John Hay Peoples Alternative Coalition v. Victor Lim, BCDA G.R. 119775. October 14, 2003, March 29, 2005
Coconut Oil Refiner’s Association, et al. v. Ruben Torres, ibid.
9. R.A. No. 9400 gives tax privileges to Clark & John Hay, R.A. No. 9399 Grants tax amnesty to locators of Clark & John Hay
3. Kinds of Taxes
a. Income subject to corporate income tax
Commissioner of Internal Revenue v. Procter & Gamble G.R. No. 66838. April 15, 1988 and December 2, 1991
Commissioner of Internal Revenue v. Wander Phils. G.R. No.68375. April 15, 1988
b. Income subject to final income tax
18
4. Branch Profit Remittance Tax
Rev. Memo Cir. 55-80, Sec. 28 [A][5], NIRC
5. Minimum Corporate Income Tax
Sec. 27[e] and Sec. 28[A][2], NIRC (RR 9-98, August 25, 1998)
6. Improperly Accumulated Earnings Tax
Sec. 29 NIRC (Rev. Regs. 2-2001, February 12, 2001)Cyanamid Philippines, Inc. v. CA G.R. No. 108067. January 20, 2000
Fringe Benefits Tax
Sec. 33
D. EXEMPT ENTITIES
1. Partnership/joint ventures formed for the purpose of undertaking constructionprojects or engaging in energy operations
Sec. 26, NIRC
Professional partnership of real estate brokers exempt from income tax (BIR ruling 294-88, July 5, 1988)
2. Co-ownership
Obillos, Jr. v. Commissioner of Internal Revenue, ibid.
3. Section 30, NIRC
Sec. 23-35, NIRCSinco v. Collector of Internal Revenue, No. 2229, May 20, 1955, 100 Phil. 127
3. Under special laws
Omnibus Investment Code – income tax holiday incentive, as amended by EO 226
Special Economic Zone Act of 1995 (RA 7916)
Bases Conversion and Development Act (RA 7227, as amended)
F. INCLUSIONS AND EXCLUSIONS FROM GROSS INCOME
Sec. 32, NIRC (Sec. 39-60, RR 2)
19
1. Definition of Gross Income
2. Exclusions from Gross Income
Sec. 61-64, NIRC RR 2, RA 4917, RA 7641 – An Act granting retirement benefits to private sector employees in absence of qualified plan
3. Exclusion of 13th Month Pay
RA 7833, January 1994, Rev. Reg. 2-95, Rev. Memo, Cir. 36-94, December 14, 1994 – Inventors and Inventions Incentives Act of the Philippines
G. ITEMS OF GROSS INCOME (Sec. 32)
1. Compensation for personal services
a. In money
b. In kind
i. “Convenience-of-the-employer rule”
Henderson v. Collector of Internal Revenue, G.R. No. L-12954. February 28, 1961
ii. RR 2-98, as amended and RR 3-98
H. INTEREST INCOME
1. Taxable
2. Not taxable
4. Imputed interest on inter-company loans/Advances
Sec. 50, NIRC (RMO 63-99, July 1999)
Commissioner of Internal Revenue v. Filinvest Development CorpG.R. No. 163653; 167689. July 19, 2011
I. INCOME UNDER LEASE AGREEMENTS
(Sec. 49, RR 2)
1. Rent
2. Obligations of lessor to third parties assumed and paid by lessee
3. Advance rental
20
4. Leasehold improvements. Options to report income for right of reversion of improvements to lessor:
a. Option 1 – Report fair market value upon completion
b. Option 2 – Report over remaining life of lease depreciated value after expiration of lease period
J. DIVIDEND INCOME Sec. 73, NIRC (Sec. 250-256, RR 2)
1. Kinds of dividends recognized in law
a. Cash
b. Property
BIR Ruling 108-93, May 7, 1993
c. Stock
Commissioner of Internal Revenue v. Manning G.R. No. L-28398, August 6, 1975, 66 SCRA 14
Fisher v. Trinidad, ibid.
2. Measure of income in cash and property dividend
3. Stock dividend
a. When taxable
1. Measure of income
b. When not taxable
1. Adjusted cost per share
4. Liquidating “dividend”
Wise & Co., Inc. v. Meer G.R. No. L-48231. June 30, 1947Commissioner of Internal Revenue v. CA G.R. No. 108576.January 20, 1999
K. INCOME FROM ANY SOURCE WHATSOEVER
1. Bad debt recovery
Sec. 50, RR 2
2. Forgiveness of indebtedness
21
Sec. 50, RR 2
3. Tax refunds
RMC 13-80, April 10, 1980
4. Damage recovery
5. Prizes and winnings
6. Income from any source whatsoever
Gutierrez v. Court of Tax Appeals. G.R. Nos. L-9738 and L-9771. May 31, 1957
L. CLASSES OF DEDUCTIONS
Sec. 34, NIRC
1. Optional standard deduction
2. Itemized deductions
M. EXPENSES IN GENERAL
Sec. 65-76, RR 2
1. Requisites for deductibility (ordinary, necessary)
Visayan Cebu Terminal Co. v. Collector of Internal Revenue G.R. No. L-12798. May 30, 1960
2. Compensation for personal services
Kuenzle & Streif, Inc. v. Commissioner of Internal Revenue IR G.R. No. L-12010 and L-12113. October 20, 1959
3. Traveling/Transportation expenses
RR 3-98
4. Cost of materials
Sec. 67, RR 2
5. Repairs
Sec. 68, RR 2
6. Expenses under lease agreements
22
Sec. 74, RR 2
7. Expenses for professionals
Sec. 69, RR 2
8. Expenses for farmers
Sec. 75, RR 2
9. Entertainment expenses
RR 3-98
10. Expenses of private educational institutions
Alhambra Cigar & Cigarette Manufacturing Co. v. Collector of Internal Revenue G.R. No. L-12026.May 29, 1959Calanoc v. Collector of Internal Revenue G.R. No. L-15922. November 19, 1961
Expense for police protection is illegal
11. Constructive dividends (Sec. 70, RR 2)
RR 10-2002, Ceilings for entertainment, amusement and recreational expenses (July 10, 2002)
N. INTEREST
1. Interest deductible from gross income
2. Interest not deductible from gross income
3. Prepaid interest of individual on cash method of accounting
Commissioner of Internal Revenue v. Vda. de Prieto G.R. No. L-13912. September 30, 1960
4. Reduction of interest expense on interest income subjected to final tax
RR 13-2000, November 20, 2000 requirement for deductibility of interest expense
O. TAXES
Sec. 80-82, RR 2
1. Deductible from gross income
2. Not deductible from gross income
Sec. 82-83, RR 2
23
3. Meaning of the term “taxes”
4. Tax Credits v. Tax Deduction
Commissioner of Internal Revenue v. Lednicky, et al. G.R. No. L-18169. July 31, 1964Commissioner Internal Revenue v. Bicolandia Drug Corp., G.R. No. 148083. July 21, 2006Mercury Drug Corporation v. Commissioner of Internal Revenue, ibid.
5. Fines and penalties
Gutierrez v. Collector of Internal Revenue. G.R. No. L-19537. May 20, 1965
P. LOSSES (Sec. 93-101, RR 2)
1. Kinds of taxpayers and their losses
2. Completed transactions
Fernandez Hermanos v. Commissioner of Internal Revenue G.R. No. L-21557. September 30, 1969
3. Special rules on losses
a. Voluntary removal of buildings
b. Lose of useful value of assets
c. Shrinkage in value of stocks
4. Wagering losses
5. Rev. Regs. 12-77, substantiation of losses
6. Foreign exchange losses
BIR Ruling 144-85, August 26, 1985Rev. Memo Circular 26-85, July 15, 1985, inter-bank guiding rate
7. Abandonment losses
8. Net operating loss carry-over (as implemented by RR 14-2001, August 27, 2001)
a. Three-year period
b. No substantial change in ownership (75% rule)
Q. BAD DEBTS
24
Sec. 102-104, RR 2
1. Requirements for deductibility
Collector of Internal Revenue v. Goodrich G.R. No. L-22265. December 22, 1967
2. Tax benefit rule
RR 5-99, March 10, 1999
3. Bad debts between related parties
Sec. 36 [B], NIRC
4. RR 5-99, March 10, 1999, requirements for deductibility of bad debts including banks
Philex Mining v. Commissioner of Internal Revenue G.R. No. 148187. April 16,2008
R. DEPRECIATION (Sec. 105-115, RR 2)
1. Depreciation base
Zamora v. Collector of Internal Revenue G.R. Nos. 15290, 15280, 15289, 15281.May 31, 1963
2. Methods of depreciation (straight line, declining balance, sum of the digits)
3. Depreciation rates
i. Bulletin “F”
ii. Rev. Regs. 19-86, Annex “A”
S. DEPLETION (Rev. Regs. 5-76, April 2, 1976)
T. PENSION TRUST (Sec. 118, RR 2)
U. CHARITABLE AND OTHER CONTRIBUTIONS (BIR-NEDA Regs. 1-81, BIR-NEDA Regs. 1-82)
1. Fully deductible
2. Deductible, subject to limitations
a. Corporation
b. Individuals
3. RR – 13-98 (December 8, 1998), implementing Section 34(H), RA 8424 “deductibility by actually paid or made to accredited donee institution”
25
V. RESEARCH AND DEVELOOPMENT EXPENSES
Sec. 34, NIRC
a. When paid or incurred; or
b. Amortized for 60 months
W. IMPOSITION OF CEILINGS ON DEDUCTIONS BY THE SECRETARY OF FINANCE
Sec. 34, last par., NIRC
X. ADDITIONAL REQUIREMENT FOR DEDUCTIBILITY
Sec. 34 [k] NIRC (RMO 38-83, November 14, 1983 on deficiency withholding)
Y. ITEMS NOT DEDUCTIBLE
Sec. 36 NIRC (Sec. 119-122, RR 2)
Atlas Consolidated v. Commissioner of Internal Revenue G.R. No. L-26911. January 27,1981
Z. SALE OR EXCHANGE OF PROPERTY
A. Capital assets
Sec. 38 (Sec. 132-135, RR 2)
1. Definition of capital asset (RR 7-2003, February 11, 2003)
Guidelines in determining whether a real property is capital or ordinary asset
Definition of ordinary income
Sec. 22 (Z)
Calasanz v. Commissioner of Internal Revenue G.R. No. L-26284. October 8, 1986
3. Net capital gain, net capital loss
4. Ordinary loss
5. Percentage taken into account (long term – short term) by taxpayers other than a corporation
6. Limitation on capital loss
7. Meaning of sale or exchange – requirement for capital gain
26
B. Determination of gain or loss from sale or transfer of property
Sec. 40 NIRC (Sec. 136-143, RR 2)
1. Computation of gain or loss
CIR v. Aquafresh Seafood, Inc., G.R. No. 170389, 20 October 2010
2. Cost or basis for income tax purposes
3. Exchange of property – tax-free exchange
Sec. 40(c)(2), NIRC
i. Merger or consolidation –
BIR Ruling 383-87, November 25, 1987
Commissioner of Internal Revenue v Vicente Rufino G.R. No. L-33665-68. February 27, 1987
ii. Transfer of “substantially all” the assets
iii. Transfer of property for shares of stocks
iv. Administrative requirements in case of tax-free exchanges
v. De facto merger
4. Cost basis in tax-free exchanges
5. Assumption of liability in tax-free exchanges
6. Business purpose
Gregory v. Helvering, 293 U.S. 465, 55 SCT 266
C. Losses from wash sales of stocks or securities
Sec. 32 NIRC (Sec. 131, RR 2)
D. Exemption from capital gains tax of certain individuals from the sale or exchange of principal residence
Sec. 24, (D)(2)
E. R.A. 9480 (Tax Amnesty) effective June 16, 2007
27
F. RR 6-2008, Taxation of Shares of Stocks (April 22, 2008)
AA. SITUS OF TAXATION – SOURCES FROM WITHIN AND WITHOUT THE PHILIPPINES
Sec. 42 NIRC (Sec. 152-165, RR 2)
1. Gross income from sources within Philippines
2. Taxable income from sources within the Philippines
Commissioner of Internal Revenue v. CTA and Smith Kline & French Overseas G.R. No. L-54108. January 17, 1984
Rev. Audit Memo Order 1-86 (income from constructive trading of multinationals)
Rev. Regs. 16-86
RAMO 4-86 (allocation of head office overhead expenses)
RAMO 1-95 (audit guidelines on determination of income tax of branches of multinationals)
3. Gross income from sources without the Philippines
4. Income from sources partly within or without the Philippines
5. Situs of sale of stocks in a domestic corporation
6. Definition of royalties
Philamlife v. CTA CA-G.R. SP No. 31283. April 25, 1995
Commissioner of Internal Revenue v. Marubeni Corp. G.R. No. 137377. December 18, 2001
Rev. Memo Circular No. 44-2005 (September 1, 2005)Guideline for computer software payment, royalty, services or business income
BB. ACCOUNTING PERIODS AND METHODS
Sec. 43-50 NIRC (Sec. 166-179, RR 2, Sec. 51-53, RR 2)
i. General rule
ii. Accounting period
iii. Accounting method (cash (actual or constructive) or accrual)
Hybrid method (Consolidated Mines, Inc. v. CTA G.R. Nos. L-18843 and 18844, L-18853 and 18854. August 29, 1974)
28
Percentage of completion method (Sec. 44, RR 2, Sec. 48 (Tax Code as amended by Tax Reform Act)
iv. Change of accounting period
v. Installment basis
vi. Allocation of income and deductions
Yutivo Sons Hardware Co. v. Commissioner of Internal Revenue ibid.
vii. Networth method
Perez v. Court of Tax Appeals G.R. No. L-10507. May 30, 1958Collector of Internal Revenue v. Reyes G.R. Nos. L-11534 and 11558.November 25, 1958
viii. Tax Evasion v. Tax Avoidance
Commissioner of Internal Revenue v. Benigno Toda, ibid.
CC. RETURNS AND PAYMENT OF TAX
1. Individual return (Sec. 51, Sec. 56), NIRC
a. Who are required to fileb. Those not required to file
c. Where to file
d. When to file
e. Where to pay
f. Capital gains on shares of stocks and real estate
g. Quarterly declaration of income tax (Sec. 74)
h. RR 3-2002, March 22, 2002 (substituted filing of ITR of salaried individuals), as amended by RR 19-2002 (November 25, 2002)
i. RR 16-2002, October 11, 2002 (modes of payment of taxes through banks)
2. Corporate regular returns (Sec. 52, Sec. 50, Sec. 56, NIRC)
a. Quarterly income tax (Sec. 75, NIRC)
b. Final adjustment return (Sec. 76, NIRC)
Commissioner v BPI. G.R. No. 178490. July 7, 2009
29
Commissioner of Internal Revenue v. PL Management International Philippines, Inc. G.R. No. 160949, April 4, 2011
c. When to file
d. Where to file (Sec. 77, NIRC)
e. When to pay
f. Capital gains on shares of stock
g. Return of corporations contemplating dissolution/reorganization
(Sec. 244, RR 2)
BPI v. Commissioner of Internal RevenueCA-G.R. SP No. 38304, April 14, 2000
DD. WITHHOLDING TAX
A. 1. Final withholding tax at source (Sec. 57, NIRC)
Withholding of creditable tax
RR 2-98 as amended
Filsyn v. CA G.R. 118408 and 124377. October 12, 1999
RR 3-2004, March 12, 2004
3. Return and payment of tax (Sec. 58, NIRC)
4. Tax deemed paid on dividends
Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation G.R. No. 66838. December 2, 1991
5. Withholding agent can file claim for refund
6. Withholding tax on dividends
Marubeni Corp. v. Commissioner of Internal Revenue G.R. No. L-76573. September 14, 1989
7. Withholding tax on royalties
Commissioner of Internal Revenue v. Court of Appeals & SC Johnson & Sons, Inc. G.R. No. 127105, June 25, 1999, August 30, 1999
30
8. Rev. Memo. Cir. 46-2002, tax on royalty payments to US entity adopts most favored nation clause under RP-China Tax Treaty effective January 1, 2002
Golden Arches Dev’t. Corp. v. Commissioner of Internal RevenueCTA Case No. 6862, July 13, 2007.
9. Withholding on wages (Sec. 78-81, RR 2-98, as amended)
C. Withholding tax by government agencies (RR 2-98, as amended)
31