2012 Bar Reviewer in Taxation
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Transcript of 2012 Bar Reviewer in Taxation
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I. General Principles
A. Definition and Concept of Taxation
As a process, it is a means by which the sovereign, through its
law-making body, raises revenue to defray the necessary expenses ofthe government. It is merely a way of apportioning the costs ofgovernment among those who in some measures are privileged toenjoy its benets and must bear its burdens.
As a power, taxation refers to the inherent power of the state to
demand enforced contributions for public purpose or purposes.
axation is a symbiotic relationship, whereby in exchange for
the protection that the citi!ens get from the government, taxes are
paid."
2. Nature of Taxation
1. It is an inherent attribute of sovereignty
2. It is legislative in character
3. Characteristics of Taxation
1. he power of taxation is an incident of sovereignty as it isinherent in the #tate, belonging as a matter of right to everyindependent government. It does need constitutional conferment.$onstitutional provisions do not give rise to the power to tax butmerely impose limitations on what would otherwise be an invinciblepower. %o attribute of sovereignty is more pervading, and at no pointdoes the power of government a&ect more constantly and intimately
all the relations of life than through the exactions made under it.'
2. he power to tax is inherent in the #tate, and the #tate is free
to select the object of taxation, such power being exclusively vested in
the legislature, except where the $onstitution provides otherwise.(
he $ongress may by law authori!e the )resident to x withinspecied limits, and subject to such limitations and restrictions as itmay impose, tari& rates, import and export *uotas, tonnage andwharfage dues, and other duties or imposts within the framework ofthe national development program of the +overnment.
ach local government unit shall have the power to create itsown sources of revenues and to levy taxes, fees, and charges subjectto such guidelines and limitations as the $ongress may provide,consistent with the basic policy of local autonomy. #uch taxes, fees,
and charges shall accrue exclusively to the local governments.
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1 Commissioner of Internal Revenue vs. Allegre, Inc., et al., L-28896, Feb. 17,19882 Churchill and Tait v. Concepcion, 34 Phil 969
3 Art. VI, Sec,28 (2); Art. X, Sec. ; Art. VI, Sec. 28. !"r. 2.4 Art. X, Sec.
1
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(. It is subject to $onstitutional and inherent limitations hence,
it is not an absolute power that can be exercised by the legislature
anyway it pleases.
4. Power of Taxation Compared With Other Powers
1.)olice )ower2.)ower of minent /omain
axation )olice )owerminent/omain
)urpose
0aising revenue)romote publicwelfare
aking of propertyfor
thru regulations public use
Amount of exaction
%o limit
1
2enefits
received
%oexaction,compensationpaid bythegovernment
%o special or direct
b %/irectbene
tresultsin the
formofjust
compensation
he impairment rulesubsist
ransfer of
propertyrights
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axes paid
b cope)ropertyis
taken
bythe
gov3t uponpayment ofjust
compensatio
n
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A&ects all persons,property and A&ects all persons,
A&ects only theparticular
exciseproperty, privileges,and
propertycomprehended
even rights
2
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2asis
)ublic necessity)ublic necessity andtheright of the state and
thepublic to self-protectionand self-preservation
)ublic necessity,private property istaken for public use
Authority which exercises the power
4nly by the
government or its
political subdivisions
4nly by the
governmen
t or its
political
subdivisi
ons
5ay begrantedto
publicservice,
companies, orpublic
utilities
E.
Purpos
e of
Tax
ation
"raising
o
provide
funds or
propert
y with
which
the
#tate
prom
otes
the
gener
al
welfa
re
and
prote
ction
of its
citi!e
ns.
'. %on-revenue6sp
ecialorregulatory
)romotionof +eneral7elfare
0egulation
0eductionof #ocialIne*uality
nc
ourageconomic+rowth
axati
on
may
be
used
as an
imple
ment
of
policepower
in
order
to
pro
mot
e
the
gen
eral
welf
are
of
the
people.8
As
in
the
cas
e oftax
es
levi
ed
on
exc
ise
s
andpri
vile
ges
like
thos
e
impose
d in
toba
cco
or
alco
holi
c
product
s or
amu
sem
ent places like
night clubs,
cabarets,
cockpits, etc.9
his is madepossiblethrough theprogressivesystem of taxation where
the objective isto prevent theunder-concentration ofwealth in thehands of few
individu
als.
Intherealm oftaxexempt
ionsandtaxreliefs,for
instance,the
purposeis tograntincentives orexemptions inorder toencourage
investments andtherebypromote
5 #eeLutz vs.
Araneta,98 Phil
148"$%Os
mea vs.Orbos,&.'.
.99886,
*"r.31,
1993
6
I$
the c"#e +
Calte !hils.
Inc. vs. COA
(&.'. .
92
8
,
*"
8,
1992),
it "#
hel%
th"t t"e# /"
"l# be
i/!#e% +r "re0l"tr
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!r!#e"#, +ri$#t"$ce,
i$thereh
"bilit"ti$"$%
#t"bili"ti
$+"
thre"te$e%
i$%#tr hichi# "ecte% ith!blic i$%#tr
lietheil
i$%#tr.
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the country3s economic growth.
e. )rotectionismIn some important sectors of the economy, asin the caseof foreign importations, taxes sometimes
provideprotection to local industries like protectivetari&s andcustoms
F. Principles of Sound Tax Sstem
". :iscal Ade*uacy
he sources of tax revenue should coincide with, and
approximate the needs of government expenditure. %either an excessnor a deciency of revenue vis-;-vis the needs of government wouldbe in keeping with the principle.
'. Administrative :easibility
ax laws should be capable of convenient, just and e&ectiveadministration
(. heoretical
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9 I$ " c"#e, the S!re/e 5rt hel% th"t10 ""ti$ i# " !er e/"$"ti$0 +r/ $ece##it. It i# " $ece##"r br%e$ t!re#ere the St"te#
#erei0$t "$% " /e"$# t 0ie the citie$r "$ "r/ t re#i#t "00re##i$, " $" t%e+e$% it# #hre# +r/ i$"#i$, " cr!# + ciil #er"$t# t #ere, !blici/!re/e$t# %e#i0$e% +r the e$:/e$t + the citie$r "$% th#e hich c/e
ith the St"te# territr "$% +"cilitie#, "$% !rtecti$ hich "4
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(. 2enets-)rotection heory"@
he basis of taxation is the reciprocal duty of protectionbetween the state and its inhabitants. In return for the contributions,
the taxpayer receives the general advantages and protection whichthe government a&ords the taxpayer and his property.
.
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11 "/!le I'5 !ri%e# +r #t"tte# + li/it"ti$ i$ the "##e##/e$t "$%cllecti$ + t"e# therei$ i/!#e%.
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3./ouble taxation
a. #trict sense
0eferred to as direct duplicate taxation, it means
1.axing twice
2.by the same taxing authority
3.within the same jurisdiction or taxing district
4. for the same purpose
5. in the same year or taxing period
6. some of the property in the
territory b.
2road
sense
0eferred to as indirect double taxation, it is taxation other than
direct duplicate taxation. It extends to all cases in which there is a
burden of two or more impositions.
c. $onstitutionality of double taxation
Bnlike in the Bnited #tates $onstitution, our $onstitution does
not prohibit double taxation.
Cowever, while it is not forbidden, it is something not favored.
#uch taxation should, whenever possible, be avoided and prevented.
In addition, where there is direct double taxation, there may be
a violation of the constitutional precepts of e*ual protection and
uniformity in taxation."'
he l" $ !re#cri!ti$, bei$0 " re/e%i"l /e"#re, #hl% be liber"ll c$#tre% t"r% !rtecti$ "# " crll"r, the ece!ti$# t the l" $ !re#cri!ti$ be #trictlc$#tre%. (CIR vs CA. &.'. . 1
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12 he "r0/e$t "0"i$#t %ble t""ti$ /" $t be i$e% here $e t" i#i/!#e% b the St"te "$% the ther i# i/!#e% b the cit, it bei$0 i%el rec0$ie%th"t there i# $thi$0 i$here$tl b$i# i$ the re=ire/e$t th"t lice$#e +ee# rt"e# be e"cte% ith re#!ect t the #"/e cc!"ti$, c"lli$0, r "ctiit b bth theSt"te "$% " !litic"l #b%ii#i$ there+. A$% here the #t"tte r r%i$"$ce i$=e#ti$, there i# $ i$+ri$0e/e$t + the rle $ e="lit (Cit# of *aguio v. +e Leon,2 S5'A 938)
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d. 5odes of eliminating double taxation
wo D'E methods of relief"(
xemption method he income or capital which is taxable at thestate of source orsitus is exempted at the state of residence,although in someinstances it may be taken into account indetermining the rateof tax applicable to the taxpayer3s remainingincome or capital
$redit methodAlthough the income or capital which is taxed inthe state of
source is still taxable in the state of residence,the tax paid inthe former is credited against the tax levied inthe latter. hebasic di&erence between the two methods isthat in theexemption method, the focus is on the income orcapital,
whereas the credit method focuses upon the tax.
13A t" tre"t re#rt# t #eer"l /eth%#. Fir#t, it #et# t the re#!ectie ri0ht# t t"+ the #t"te + #rce r #it# "$% + the #t"te + re#i%e$ce ith re0"r% t cert"i$
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cl"##e# + i$c/e r c"!it"l. I$ #/e c"#e#, "$ ecl#ie ri0ht t t" i# c$+erre% $$e + the c$tr"cti$0 #t"te#; heer, +r ther ite/# + i$c/e r c"!it"l, bth#t"te# "re 0ie$ the ri0ht t t", "lth0h the "/$t + t" th"t /" be i/!#e% bthe #t"te + #rce i# li/ite%. he #ec$% /eth% +r the eli/i$"ti$ + %blet""ti$ "!!lie# he$eer the #t"te + #rce i# 0ie$ " +ll r li/ite% ri0ht t t"t0ether ith the #t"te + re#i%e$ce. I$ thi# c"#e, the tre"tie# /"e it i$c/be$t!$ the #t"te + re#i%e$ce t "ll relie+ $ r%er t "i% %ble t""ti$.
7
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4.scape from taxation
a. #hifting of tax burden"
1) 7ays of shifting the tax burden
a. :orward shifting7hen the burden of the tax is transferred from afactor ofproduction through the factors of distributionuntil it nally
settles on the ultimate purchaser or consumer."8
b. 2ackward shifting7hen the burden of the tax is transferred fromthe consumeror purchaser through the factors of distributionto the factors
of production."9
c. 4nward shifting7hen the tax is shifted two or more times eitherforward or
backward."=
'E axes that can be shifted
4nly indirect taxes may be shifted"?direct taxes">cannot beshifted.
14 he tr"$#+er + the br%e$ + " t" b the ri0i$"l !"er r the $e $ h/the t" "# "##e##e% r i/!#e% t #/e$e el#e.15 Prce## b hich #ch t" br%e$ i# tr"$#+erre% +r/ #t"ttr t"!"er t
"$ther itht il"ti$0 the l".>h"t i# tr"$#+erre%i# $t the !"/e$t + the t", bt the br%e$ + the t"
16 "/!le17 *"$+"ctrer r !r%cer /" #hi+t t" "##e##e% t hle#"ler, h i$ tr$
#hi+t# it t the ret"iler, h"l# #hi+t# it t the ?$"l !rch"#er rc$#/er 16"/!le
5$#/er r !rch"#er /" #hi+t t" i/!#e% $ hi/ t ret"iler b !rch"#i$0 $l"+ter the !rice i# re%ce%, "$% +r/ the l"tter t the hle#"ler, r ?$"ll t the/"$+"ctrer r !r%cer17 "/!leh#, " tr"$#+er +r/ the #eller t the !rch"#er i$le# $e #hi+t; +r/ the!r%cer t the
hle#"ler, the$ t ret"iler, e h"e t #hi+t#; "$% i+ the t" i# tr"$#+erre% "0"i$ tthe !rch"#er b the ret"iler, e h"e three #hi+t# i$ "ll.
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18 e.0. VA
19 e.0. I$c/e t"8
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(E 5eaning of impact and incidence oftaxation
Impact of taxation Incidence of taxation
he point on which a tax isoriginally imposed. In so far as thelaw is concerned, the taxpayer is theperson who must pay the tax to thegovernment. Ce is also termed asthe statutory taxpayer-the one onwhom the tax is formally assessed.Ce is the subject of the tax.
he point onwhich the taxburden nallyrests or settledown. It takesplace whenshifting hasbeen e&ectedfrom the
statutorytaxpayer toanother.
b.axavoidance'
@
he exploitation of
the taxpayer of legally
permissible alternativetax rates or methods of
assessing taxable
property or income in
order to
avoid orreduce tax
liabilit
c. axevasion
he
use by the
taxpayer
of illegal
orfraudulent
means to
defeat or
lessen the
payment of
tax.
20 "l#
$$ "#@t"
/i$i/i"ti$; it i# $t!$i#he%b l"1 "l#$$"#@t"%%0i$0;iti#!$i#h"blebl"le/e$t#+t"e"#i$1.he e$%
t be"chiee%, i.e.!"/e$t +le## th"$th"t $$b thet"!"er t
be le0"ll%e, r!"i$0 $t" he$ it i##h$ th"tt" i# %e
2. A$"cc/!"$i$0 #t"te + /i$% hichi# %e#cribe%"# bei$0@eil, @i$b"% +"ith,@ill+l, r@%eliber"te"$% $t@"cci%e$t"l
3.A cr#e
+ "cti$ (r +"ilre +"cti$) hich i# $l"+l
I$%ici" + +r"% i$ t"e"#i$
1. F"ilre t %ecl"re +rt""ti$ !r!#e# tre "$%"ct"l i$c/e %erie% +r/b#i$e## +r t (2)c$#ectie e"r#; r
2. Sb#t"$ti"l $%er%ecl"r"ti$ + i$c/e t"retr$# + the t"!"er +r+r (4) c$#ectie e"r#c!le% ith $i$te$ti$"ler#t"te/e$t + %e%cti$#
i%e$ce t !re t"e"#i$Si$ce +r"% i# " #t"te +
/i$%, it $ee% $t be !re%b %irect ei%e$ce bt /"be !re% +r/ thecirc/#t"$ce# + the c"#e.
F"ilre + the t"!"er t%ecl"re +r t""ti$!r!#e# hi# tre "$% "ct"li$c/e %erie% +r/ hi#b#i$e## +r t (2)c$#ectie e"r# i# "$
i$%ic"ti$ + hi# +r"%le$ti$te$t t che"t the0er$/e$t + it# %e t"e#.('e!blic #. &$"le#, 13S5'A 638)
9
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8. xemption from taxation
a. 5eaning of exemption from taxation
It is the grant of immunity to particular persons or corporations
or to persons or corporations of a particular class from a tax whichpersons and corporations generally within the same state or taxingdistrict are obliged to pay. It is an immunity or privilege it is freedomfrom a nancial charge or burden to which others are subjected.''
2. %ature of tax exemption
1) It is a mere personal privilege of the grantee.
2) It is generally revocable by the government unless the
exemption is founded on a contract which is contract which isprotected from impairment.
3) It implies a waiver on the part of the government of its right
to collect what otherwise would be due to it, and so is prejudicial
thereto.
4) It is not necessarily discriminatory so long as the exemption
has a reasonable foundation or rational basis.
5) It is not transferable except if the law expressly provides so.
3.Finds of tax exemption
1)xpress'(
7hen certain persons, property or transactions are, by express
provision, exempted from all certain taxes, either entirely or in part.
'E Implied'
7hen a tax is levied on certain classes of persons, properties, or
transactions without mentioning the other classes.
'8
22e/!ti$ i# "lle% $l i+ there i# " cle"r !ri#i$ there+r.It i# $t $ece##"ril %i#cri/i$"tr "# l$0 "# there i# " re"#$"ble +$%"ti$ rr"ti$"l b"#i#. e/!ti$# "re $t !re#/e%, bt he$ !blic !r!ert i# i$le%,ee/!ti$ i# the rle "$% t""ti$
i# the ee/!ti$.23 r "Br/"tie ee/!ti$
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24 r ee/!ti$ b /i##i$25 t" ee/!ti$ b i/!lic"ti$
It /#t be e!re##e% i$ cle"r "$% $/i#t""ble l"$0"0e
26 er t" #t"tte /"e# ee/!ti$# bec"#e + /i##i$#.1
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(E $ontractual
Agreed to by the taxing authority in contracts lawfully entered
into by them under enabling laws.
d. 0ationale6grounds for exemption
0ationale for granting taxexemptions
Its avowed purpose is some publicbenet or interests which thelawmaking body considerssu&icient to o&set the monetaryloss entailed in the grant of theexemption.he theory behind the grant of taxexemptions is that such act willbenet the body of the people. It isnot based on the idea of lesseningthe burden of the individualowners of property.
+rounds forgranting taxexemptions
1) 5ay be basedon contract.'9
2) 5ay be based
on some groundof public policy.'=
3) 5ay be basedon grounds ofreciprocity or tolessen the rigors
of internationaldouble ormultiple
taxation.'?
e
.0evocatio
nofta
x exemption
It is
an act of
liberality
which
could be
taken back
by the
governmen
t unless
there are
restrictions. #ince
taxation is
the rule
and
taxation
therefrom
is the
exception
, theexemptio
n may be
withdraw
n by the
taxing
authority.'>
26 I$ #ch " c"#e, the!blic, hich i# re!re#e$te%b the 0er$/e$t i##!!#e% t receie " +lle=i"le$t there+r, i.e.ch"rter + " cr!r"ti$.27 i.e., t e$cr"0e$e i$%#trie# r t +#terch"rit"ble i$#titti$#. Cere,the 0er$/e$t $ee% $treceie "$ c$#i%er"ti$ i$retr$ +r the t"
ee/!ti$.+r t" ee/!ti$.e/!ti$ i# "lle% $l i+there i# " cle"r !ri#i$there+r.
29 actan Cebu
International Airport
Authorit# vs., arcos, 261
S5'A 667.
11
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9. $ompensation and #et-o&(@
+eneral 0ule
axes are not subject to set-o& or legal compensation. he
government and the taxpayer are not creditors and debtors or eachother. 4bligations in the nature of debts are due to the government inits corporate capacity, while taxes are due to the government in its
sovereign capacity.("
xception
7here both the claims of the government and the taxpayer
against each other have already become due and demandable as well
as fully li*uated.('
=. $ompromise
A contract whereby the parties, by reciprocal concessions, avoid
litigation or put an end to one already commenced.((
8.ax amnesty
a. /enition
A general pardon or intentional overlooking by the #tate of its
authority to impose penalties on persons otherwise guilty of evasion
or violation of a revenue to collect what otherwise would be due it
and, in this sense, prejudicial thereto.(
30 'e=i#ite# + 5/!e$#"ti$ i$ t""ti$
1.he t" "##e##e% "$% the cl"i/ "0"i$#t the 0er$/e$t be +ll li=i%"te%.2.he t" "##e##e% "$% the cl"i/ "0"i$#t the 0er$/e$t i# %e "$% %e/"$%"ble,
"$%
3.he 0er$/e$t h"% "lre"% "!!r!ri"te% +$%# +r the !"/e$t + the cl"i/(+omingo v. "arlitos,
L-189
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2.h#e i$li$0 +r"%.
34" "/$e#t, lie t" ee/!ti$, i# $eer +"re% $r !re#/e% i$ l" "$% i+0r"$te% b #t"tte /#t be c$#tre% #trictl "0"i$#t the t"!"er, h /#t #hc/!li"$ce ith the l".
he 0er$/e$t i# $t estopped+r/ =e#ti$i$0 the t" li"bilit ee$ i+ "/$e#t
t" !"/e$t# ere "lre"% receie%12
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b. /istinguished from tax exemption
ax amnesty ax exemption)artakes of an absolute forgivenessor waiver
he grant of immunity to particularpersons
by the +overnment of its right tocollect or corporations of a particularclass from awhat otherwise would be due itand, in this
tax of which persons andcorporations
sense, prejudicial thereto,particularly to tax
generally within the same state ortaxing
evaders who wish to relent and arewilling to district are obliged to pay.reform are given a chance to do soandtherefore become a part of the
society with aclean slate.
Immunity from all criminal, civiland Immunity from civil liability onlyadministrative liabilities arisingfrom non-
payment of taxes
Applies only to past tax periods,hence )rospective application
retroactive application
here is revenue loss since therewas actually taxes due but collectionwas waived by the government.
%one, becausethere was noactual taxes dueas the person or
transaction isprotected by taxexemption.
%ever favored nor
presumed in law, and isgranted by statute. heterms of the amnesty orexemption must bestrictly construedagainst the taxpayer
andliberally infavor of thegovernment.
rr$e# "!!lic"ti$ "$%
e$+rce/e$t + the l" b!blic Bcer# % $t blc#b#e=e$t crrect"!!lic"ti$ + the #t"tte.
he 0er$/e$t i# $eerestopped b /i#t"e# rerrr# b it# "0e$t#.
13
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9. $onstruction and
Interpretation of a.
ax laws
1)+eneral 0ule
ax laws are liberally interpreted in favor of the taxpayer and
strictly against the government.
'E xception
1iberal interpretation does not apply to tax exemptions which
should be construed in strictissimi jurisagainst the taxpayer.(8
2. ax exemption and exclusion
1)+eneral 0ule
In the construction of tax statutes, exemptions are not favoredand are construed strictissimi juris against the taxpayer. (9 hefundamental theory is that all taxable propertyshould bear its sharein the cost and expense of the government.
axation is the rule and exemption. Ce who claims exemptionmust be able to justify his claim or right thereto by a grant express in
terms Gtoo plain to be mistaken and too categorical to bemisinterpreted.H If not expressly mentioned in the law, it must be atleast within its purview by clear legislative intent.
2)xceptions
1.he law itself expressly provides for a liberal constructionthereof.
2. In cases of exemptions granted to religious, charitable andeducational institutions or to the government or its agencies or to
public property because the general rule is that they are exemptedfrom tax.
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35 'e"#$ Li+ebl% %ctri$e
36 Strict i$ter!ret"ti$ %e#$t "!!l t the 0er$/e$t "$% it# "0e$cie#37 Petiti$er c"$$t i$e the rle + strictissimi -uris ith re#!ect t the
i$ter!ret"ti$ + #t"tte#0r"$ti$0 t" ee/!ti$# t the P5. he rle $ #trict i$ter!ret"ti$ %e# $t "!!li$ the c"#e + ee/!ti$# i$ +"r + " !litic"l #b%ii#i$ r i$#tr/e$t"lit + the0er$/e$t Eaceda v. acaraig
14
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3.ax rules and regulations
1)+eneral rule only
hey shall not be given retroactive application if the revocation,
modication or reversal will be prejudicial to the taxpayers.(=
d. )enal provisions of tax laws
ax laws are civil and not penal in nature, although there are
penalties provided for their violation.
he purpose of tax laws in imposing penalties for delin*uencies
is to compel the timely payment of taxes or to punish evasion or
neglect of duty in respect thereof.
5.%on-retroactive application to taxpayers
1)xceptions
A statute may operate retroactively provided it is expresslydeclared or is clearly the legislative intent. 2ut a tax law should not begiven retroactive application when it would be harsh and oppressive.
9. Scope and #imitation of Taxation
1. Inherent
1imitations a.
)ublic
)urpose(?
he tax must be used
1) for the support of the state or
2) for some recogni!ed objects of governments or
3) directly to promote the welfare of the community(>
37 Sec. 246
38 e#t i$ %eter/i$i$0 Pblic Pr!#e# i$ t"1.Gt e#t H hether the thi$0 t be thre"te$e% b the "!!r!ri"ti$ + !blic
ree$e i# #/ethi$0 hich i# the %t + the St"te, "# " 0er$/e$t.2. Pr/ti$ + &e$er"l >el+"re e#t H hether the l" !ri%i$0 the t" %irectl
!r/te# the el+"re + the c//$it i$ e="l /e"#re.he ter/ @!blic !r!#e i# #$$/# ith @0er$/e$t"l !r!#e; " !r!#e
"ecti$0 the i$h"bit"$t# + the #t"te r t"i$0 %i#trict "# " c//$it "$% $t
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/erel "# i$%ii%"l#.A t" leie% +r " !ri"te !r!#e c$#titte# " t"i$0 + !r!ert itht %e!rce## + l".
he !r!#e# t be "cc/!li#he% b t""ti$ $ee% $t be ecl#iel !blic.Alth0h !ri"te i$%ii%"l# "re %irectl be$e?te%, the t" l% #till be "li%!ri%e% #ch be$e?t i# $l i$ci%e$t"l.
1
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2. Inherently 1egislative
1)+eneral 0ule
axation is purely legislative, $ongress cannot delegate the
power to others. his limitation arises from the doctrine of separationof powers among the three branches of government.
2)xceptions
1)/elegation to localgovernments@
he power of local government units to impose taxes and fees is
always subject to the limitations which the $ongress may provide, the
former having no inherent power to tax."
he power to tax is primarily vested in the $ongress, however,in our jurisdiction, it may be exercised by local legislative bodies, nolonger merely by virtue of a valid delegation but pursuant to direct
authority conferred by #ection 8,'Article of the">?= $onstitution,subject to guidelines and limitations which $ongress may provide
which must be consistent with the basic policy of local autonomy.(
bE /elegation to the )resident
he power granted to $ongress under this constitutional
provision to authori!e the )resident to x within specied limits andsubject to such limitations and restrictions as it may impose, tari&rates and other duties and imposts include tari&s rates even forrevenue purposes only. $ustoms duties which are assessed at theprescribed tari& rates are very much like taxes which are fre*uently
imposed for both revenue-raising and regulatory purposes.8
cE /elegation to administrativeagencies
7ith respect to aspects of taxation not legislative in character.46
he te#t i# $t "# t h receie# the /$e, bt the ch"r"cter + the !r!#e +rhich it i# e!e$%e%; $t the i//e%i"te re#lt + the e!e$%itre bt r"ther thelti/"te.
I$ the i/!#iti$ + t"e#, !blic !r!#e i# !re#/e%.39 t""ti$ "# "$ i/!le/e$t + !lice !er40 Art. X. Sec. 41 *asco v. !A"COR42 "ch lc"l 0er$/e$t $it #h"ll h"e the !er t cre"te it# $ #rce# +ree$e# "$% t le t"e#, +ee# "$% ch"r0e# #b:ect t #ch 0i%eli$e# "$%li/it"ti$# "# the 5$0re## /" !ri%e, c$#i#te$t ith the b"#ic !lic + lc"l"t$/. Sch t"e#, +ee#, "$% ch"r0e# #h"ll "ccre ecl#iel t the lc"l
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0er$/e$t#.43 CIAA v. arcos, 261 S5'A 66744 Art.VI, Sec. 28(2)45 "arcia vs. ecutive &ecretar#, et. "l., &.'. . 1
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3.erritorial
1)#itus of axation=
1) 5eaning
1iterally means Gthe place of taxation.H
he place or the authority that has the right to impose and
collect taxes.?It is premised upon the symbiotic relation between thetaxpayer and the #tate.
bE #itus of Income ax
"E :rom sources within the)hilippines
'E :rom sources without the)hilippines
/etermined by the nationality, residence of the taxpayer and
source of income.>
(E Income partly within and
partly without the
)hilippines
Allocated or apportioned to sources within or without the
)hilippines.8@
5ert"i$ "#!ect# + the t"i$0 !rce## th"t "re $t re"ll le0i#l"tie i$ $"tre "ree#te% i$ "%/i$i#tr"tie "0e$cie#. I$ the#e c"#e#, there re"ll i# $ %ele0"ti$, t it
1) !er t "le !r!ert
2)!er t "##e## "$% cllect t"e#
3) !er t !er+r/ %et"il# + c/!t"ti$, "!!r"i#e/e$t r "%:#t/e$t#.Fr the %ele0"ti$ t be c$#titti$"ll "li%, the l" /#t be c/!lete i$ it#el+
"$% /#t #et +rth #Bcie$t #t"$%"r%#.
47 @It i# "$ i$here$t /"$%"te th"t t""ti$ #h"ll $l be eerci#e% $ !er#$#,!r!ertie#, "$% eci#e ithi$ the territr + the t"i$0 !er bec"#e
1." l"# % $t !er"te be$% " c$tr# territri"l li/it.
2.Pr!ert hich i# hll "$% ecl#iel ithi$ the :ri#%icti$ + "$ther #t"tereceie# $$e + the !rtecti$ +r hich " t" i# #!!#e% t be c/!e$#"ti$.Ceer, the +$%"/e$t"l b"#i# + the ri0ht t t" i# the c"!"cit + the
0er$/e$t t !ri%e be$e?t# "$% !rtecti$ t the b:ect + the t". A !er#$ /"be t"e%, ee$ i+ he i# t#i%e the t"i$0 #t"te, here there i# betee$ hi/ "$% thet"i$0 #t"te, " !riit + rel"ti$#hi! :#ti+i$0 the le.48 Commissioner vs. arubeni, &.'. . 137377, Gec.18, 2
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th"t !r%ce% the i$c/e t !l"ce i# the #it# + t""ti$.
50 Fr the !r!#e + c/!ti$0 the t""ble i$c/e there+r/, here ite/# +0r## i$c/e "re #e!"r"tel "llc"te% t #rce# ithi$ the Phili!!i$e#, there #h"ll be%e%cte%(1) the e!e$#e#, l##e# "$% ther %e%cti$# !r!erl "!!rti$e% r "llc"te%
theret, "$%
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cE #itus of )roperty axes
D"E axes on 0eal )roperty
he place where the property is located. he applicable concept
is lex situsor lex reisitae.8"
D'E axes on )ersonal)roperty
angible personal property Intangible personal property
7here the property is physically
located although the owner resides
in another jurisdiction.8'
he place where
the owner is
located. he
applicable
concept is
mobilia
sequuntur
personam.8(
dE#itus
ofxcise ax
D"E
state ax
D'E /onor3s ax
/etermined by the
nationality and
residence
of the
taxpayer
and the
place
where the
property is
located.
(b) "r"t"ble !"rt+ there!e$#e#,l##e# rther%e%cti$#hich c"$$t
%e?$itel be "llc"te% t#/e ite/# r cl"##e# +0r## i$c/e. here/"i$%er, i+ "$, #h"ll bei$cl%e% i$ +ll "# t""blei$c/e +r/ #rce# ithi$the Phili!!i$e#.
51 >e c"$ $l i/!#e!r!ert t" $ the!r!ertie# + " !er#$h#e re#i%e$ce i# i$ thePhili!!i$e#.
52 1 A/ Dr. 4673 /"ble#+llthe$err%/icile+the$erce!ti$#1.>he$ the !r!ert h"#
"c=ire% " b#i$e###it# i$ "$ther
:ri#%icti$;
2.>he$ "$ e!re##!ri#i$ + the #t"tte!ri%e +r "$ther rle.
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eE #itus of 2usiness ax
he place where the act or business is performed or occupationis engaged in.
8
D"E #ale of 0eal )roperty
he place or location of the real property.88
D'E #ale of )ersonal )roperty
he place of sale.
D(E JA
7here the goods, property or services are destined,
used or consumed. d. International
$omity89
he property of a foreign state or government may not be taxedby another.8=
4here the tr"$#"cti$i# !er+r/e% bec"#e it i# th"t !l"ce th"t 0ie# !rtecti$he !er t le "$ eci#e !$ the !er+r/"$ce + "$ "ct r the e$0"0i$0 i$ "$
cc!"ti$ %e# $t %e!e$% !$ the %/icile + the !er#$ #b:ect t the eerci#e,$r !$ the !h#ic"l lc"ti$ + the !r!ert r i$ c$$ecti$ ith the "ct rcc!"ti$ t"e%, bt %e!e$%# !$ the !l"ce $ hich the "ct i# !er+r/e% rcc!"ti$ e$0"0e% i$.h#, the 0"0e + t""bilit %e# $t %e!e$% $ the lc"ti$ + the Bce, bt
"tt"che# !$ the !l"ce here the re#!ectie tr"$#"cti$ i# !er+ecte% "$%c$#//"te% (/ope0ell vs. Com. of Customs)
55 S, i+ the !r!ert #l% i# #it"te% ithi$ the Phil#., the i$c/e %erie% +r/#ch #"le i# c$#i%ere% "# i$c/e ithi$.56 5/it i# the re#!ect"ccr%e% t ther #erei0$ $"ti$#.57 he 0r$%# +r the "be "re
1.#erei0$ e="lit "/$0 #t"te#2. #"0e "/$0 #t"te# th"t he$ $e e$ter i$t the territr + "$ther, there i#
"$ i/!lie% $%er#t"$%i$0 th"t the !er %e# $t i$te$% t %e0r"%e it# %i0$it b
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!l"ci$0 it#el+ $%er the :ri#%icti$ + the l"tter
3.+rei0$ 0er$/e$t /" $t be #e% itht it# c$#e$t # th"t it i# #ele## t"##e## the t" #i$ce it c"$$t be cllecte%
4.reci!rcit "/$0 #t"te#
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5. xemption of +overnment ntities,
Agencies, and Instrumentalities
1.Agencies performing governmental functions - tax exempt8?
2. Agencies performing proprietary functions - subject to tax.
2. $onstitutional 1imitations
a. )rovisions /irectly A&ecting axation
"E )rohibition against imprisonment for non-
payment of poll tax
%o person shall be imprisoned for debt or non-payment of polltax.8>
'E Bniformity and e*uality of taxation
he rule of taxation shall be uniform and e*uitable. he
$ongress shall evolve a progressive system of taxation.9@
58 he ee/!ti$ "!!lie# $l t 0er$/e$t"l e$titie# thr0h hich the
0er$/e$t i//e%i"tel "$% %irectl eerci#e# it# #erei0$ !er#.59 " ee/!ti$ + !r!ert $e% b the 'e!blic + the Phili!!i$e# re+er# tthe !r!ert $e% b the 0er$/e$t "$% it# "0e$cie# hich % $t h"e #e!"r"te"$% %i#ti$ct !er#$"lit (1+C vs. Cebu Cit#) h#e cre"te% b #!eci"l ch"rter(i$cr!r"te% "0e$cie#) "re $t cere% b the ee/!ti$
60 Sec. 2
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2
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3) +rant by $ongress of authority to the
)resident to impose tari& rates
he $ongress may, by law, authori!e the )resident to x tari&
rates, import and export *uotas, tonnage and wharfage dues, and
other duties or imposts within the framework of the nationaldevelopment program of the government.9"
E )rohibition against taxation of religious,
charitable entities, and educational entities
#ubject to the conditions prescribed by law, all grants,endowments, donations or contributions used actually, directly andexclusively for educational purposes shall be exempt from tax.9'
5) )rohibition against taxation of non-stock,
non-prot institutions
All revenues and assets of non-stock, non-prot educational
institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties.9(
9E 5ajority vote of $ongress for grant of taxexemption
%o law granting any tax exemption shall be passed without the
concurrence of a majority of all the members of the $ongress.9
61 Art. 28 (2), Art. VI62 Sec. 4(4), Art. XIV.63 he ee/!ti$ 0r"$te% t $$-#tc, $$-!r?t e%c"ti$"l i$#titti$ cer#
i$c/e, !r!ert, "$%%$r# t"e#, "$% c#t/ %tie#. be ee/!t +r/ t" r %t, the ree$e, "##et#, !r!ert r %$"ti$ /#t be
#e% "ct"ll, %irectl "$% ecl#iel +r e%c"ti$"l !r!#e.I$ the c"#e r reli0i# "$% ch"rit"ble e$titie# "$% $$-!r?t ce/eterie#, the
ee/!ti$ i# li/ite% t !r!ert t".he #"i% c$#titti$"l !ri#i$ 0r"$ti$0 t" ee/!ti$ t $$-#tc, $$-!r?t
e%c"ti$"l i$#titti$ i# #el+-eecti$0." ee/!ti$#, heer, + !r!riet"r (+r !r?t) e%c"ti$"l i$#titti$# re=ire
!rir le0i#l"tie i/!le/e$t"ti$. heir t" ee/!ti$ i# $t #el+-eecti$0.L"$%#, Kil%i$0#, "$% i/!re/e$t# "ct"ll, %irectl, "$% ecl#iel #e% +r
e%c"ti$"l !r!#e% "re ee/!t +r/ !r!ert t", hether the e%c"ti$"li$#titti$ i# !r!riet"r r $$-!r?t63Sec. 4 (3), Art. XIV
Prcee%# + the #"le + re"l !r!ert b the '/"$ 5"thlic chrch i# ee/!t +r/i$c/e t" bec"#e the tr"$#"cti$ "# "$ i#l"te% $e (anila !olo Club vs. CTA)
I$c/e %erie% +r/ the h#!it"l !h"r/"c, %r/itr "$% c"$tee$ "# ee/!t+r/ i$c/e t" bec"#e the !er"ti$ + th#e e$titie# "# /erel i$ci%e$t"l t the!ri/"r !r!#e + the ee/!t cr!r"ti$ (&t. !aul /ospital of Iloilo vs. CIR)
>here the e%c"ti$"l i$#titti$ i# !ri"te "$% $$-!r?t (bt " #tccr!r"ti$), it i# #b:ect t i$c/e t" bt "t the !re+ere$ti"l r"te + te$ !erce$t(1
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" =r/, bt + "ll /e/ber# + the 5$0re##.
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=E )rohibition on use of tax levied for specialpurpose
All money collected or any tax levied for a special purpose shall
be treated as a special fund and paid out for such purpose only. If thepurpose for which a special fund was created has been fullled orabandoned the balance, if any, shall be transferred to the general
funds of the government.98
8) )resident3s veto power on appropriation,
revenue, tari& bills
he )resident shall have the power to veto any particular item
or items in an Appropriation, 0evenue or ari& bill but the veto shall
not a&ect the item or items to which he does not object.99
>E %on-impairment of jurisdiction of the#upreme $ourt
he $ongress shall have the power to dene, prescribe, and
apportion the jurisdiction of the various courts but may not deprive
the #upreme $ourt of its jurisdiction over cases enumerated in #ec.
89=hereof.
6Sec. 29(3), Art. VI
A$ e"/!le i# the il Price St"bili"ti$ F$% cre"te% $%er P.G. 196 t #t"biliethe !rice# + i/!rte% cr%e il. I$ " %eci%e c"#e, it "# hel% th"t here $%er "$eectie r%er + the Pre#i%e$t, thi# #!eci"l +$% i# tr"$#+erre% +r/ the 0e$er"l +$%t " @tr#t li"bilit "cc$t, the c$#titti$"l /"$%"te i# $t il"te%. he PSF,"ccr%i$0 t the crt, re/"i$# "# " #!eci"l +$% #b:ect t 5A "%it ( OsmeavsOrbos, et "l., &.'. . 99886, *"r. 31, 1993)66 Sec. 27(2), Art. VI
67 he S!re/e 5rt #h"ll h"e the +lli$0 !er#1. erci#e ri0i$"l :ri#%icti$ er c"#e# "ecti$0 "/b"##"%r#, ther !blic
/i$i#ter# "$% c$#l#, "$% er !etiti$# +r certir"ri, !rhibiti$, /"$%"/#, ="rr"$t, "$% h"be"# cr!#.
2.'eie, rei#e, reer#e, /%i+, r "Br/ $ "!!e"l r certir"ri, "# the l" r the'le# + 5rt /" !ri%e, ?$"l :%0/e$t# "$% r%er# + ler crt# i$
1. All c"#e# i$ hich the c$#titti$"lit r "li%it + "$ tre"t, i$ter$"ti$"l reectie "0ree/e$t, l", !re#i%e$ti"l %ecree, !rcl"/"ti$, r%er, i$#trcti$,r%i$"$ce, r re0l"ti$ i# i$ =e#ti$.
2.All c"#e# i$li$0 the le0"lit + "$ t", i/!#t, "##e##/e$t, r tll, r "$!e$"lt i/!#e% i$ rel"ti$ theret.
3. All c"#e# i$ hich the :ri#%icti$ + "$ ler crt i# i$ i##e.
4.All cri/i$"l c"#e# i$ hich the !e$"lt i/!#e% i# recl#i$ !er!et" r hi0her.
5.All c"#e# i$ hich $l "$ errr r =e#ti$ + l" i# i$le%.3. A##i0$ te/!r"ril :%0e# + ler crt# t ther #t"ti$# "# !blic i$tere#t /"
re=ire. Sch te/!r"r "##i0$/e$t #h"ll $t ecee% #i /$th# itht the c$#e$t+ the :%0e c$cer$e%.
4.r%er " ch"$0e + e$e r !l"ce + tri"l t "i% " /i#c"rri"0e + :#tice.
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5. Pr/l0"te rle# c$cer$i$0 the !rtecti$ "$% e$+rce/e$t + c$#titti$"lri0ht#, !le"%i$0, !r"ctice, "$% !rce%re i$ "ll crt#, the "%/i##i$ t the !r"ctice +l", the i$te0r"te% b"r, "$% le0"l "##i#t"$ce t the $%er-!riile0e%. Sch rle# #h"ll!ri%e " #i/!li?e% "$% i$e!e$#ie !rce%re +r the #!ee% %i#!#iti$ + c"#e#,#h"ll be $i+r/ +r "ll crt# + the #"/e 0r"%e, "$% #h"ll $t %i/i$i#h, i$cre"#e, r/%i+ #b#t"$tie ri0ht#. 'le# + !rce%re + #!eci"l crt# "$% ="#i-:%ici"l
b%ie# #h"ll re/"i$ eectie $le## %i#"!!re% b the S!re/e 5rt.
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10)+rant of power to the local governmentunits to create its own sources of revenue
ach local government unit has the power to create its own
revenue and to levy taxes, fees and charges subject to such guidelines
and limitations as the $ongress may provide.9?
""E :lexible tari& clause
his clause provides the authority given to the )resident to
adjust tari& rates under #ection @"9> of the ari& and $ustoms
$ode.=@
"'E xemption from real property taxes
$haritable institutions, churches and parsonages or convents
appurtenant thereto, mos*ues, non-prot cemeteries, and all lands,building, and improvements actually, directly andexclusively used forreligious, charitable or educational purposes shall be exempt from
taxation.="
6. A!!i$t "ll Bci"l# "$% e/!lee# + the D%ici"r i$ "ccr%"$ce ith the 5iilSerice L". (Art. VIII) 68Sec , Art. X
Lc"l 0er$/e$t $it# h"e $ !er t +rther %ele0"te #"i% c$#titti$"l 0r"$tt r"i#e ree$e, bec"#e h"t i# %ele0"te% i# $t the e$"ct/e$t r the i/!#iti$+ " t", it i# the "%/i$i#tr"tie i/!le/e$t"ti$.
he !er + lc"l 0er$/e$t $it# t i/!#e t"e# "$% +ee# i# "l"# #b:ect t
the li/it"ti$# hich 5$0re## /" !ri%e, the +r/er h"i$0 $ i$here$t !er tt".
*$ici!"l cr!r"ti$# "re /ere cre"tre# + 5$0re## hich h"# the !er tcre"te "$% "bli#h /$ici!"l cr!r"ti$#. 5$0re## there+re h"# the !er tc$trl er lc"l 0er$/e$t $it#. I+ 5$0re## c"$ 0r"$t t " /$ici!"l cr!r"ti$the !er t t" cert"i$ /"tter#, it c"$ "l# !ri%e +r ee/!ti$# r ee$ t"eb"c the !er (*asco vs. !A"COR)the Pre#i%e$t !$ the rec//e$%"ti$ + the "ti$"l c$/ic "$% Geel!/e$tAthrit i# e/!ere%
1) i$cre"#e, re%ce r re/e ei#ti$0 !rtectie r"te# + i/!rt %t,!ri%e% th"t the i$cre"#e #hl% $t be hi0her th"$ 1
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%irectl "$% ecl#iel #e% +r reli0i#, ch"rit"ble r e%c"ti$"l !r!#e#, "$%th"t the $l c$#titti$"ll rec0$ie% ee/!ti$ +r/ t""ti$ + ree$e# "reth#e e"r$e% b $$-!r?t, $$-#tc e%c"ti$"l i$#titti$#
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13) %o appropriation or use of public money
for religious purposes
%o public money or property shall be appropriated, applied,paid or employed, directly or indirectly for the use, benet, support ofany sect, church, denomination, sectarian institution, or system ofreligion or of any priest, preacher, minister, or other religious teacheror dignitary as such except when such priest, preacher, minister ordignitary is assigned to the armed forces or to any penal institution,or government orphanage or leprosarium.='
2. )rovisions Indirectly A&ecting axation
1) /ue process
%o person shall be deprived of life, liberty or property withoutdue process of law=(
x x x.
2) *ual protection
30 nor shall any person be denied the e*ual protection of thelaws.=
3) 0eligious freedom
%o law shall be made respecting an establishment of religion or
prohibiting the free exercise thereof. he free exercise and enjoyment
of religious profession and worship, without discrimination orpreference, shall be forever allowed.=8
E %on-impairment of obligations of contracts
%o law impairing the obligation of contract shall be passed.=9
hich "re "ct"ll, %irectl "$% ecl#iel #e% +r e%c"ti$"l !r!#e#.(Commissioner of InternalRevenue v. Court of Appeals, et "l., 298 S5'A 83)72Sec. 29(2), Art. VI
Pblic !r!ert /" be le"#e% t " reli0i# 0r! !ri%e% th"t the le"#e ill bett"ll $%er the #"/e c$%iti$# "# th"t t !ri"te !er#$# ("/$t + re$t).
5$0re## i# itht !er t "!!r!ri"te +$%# +r " !ri"te !r!#e.73 Sec. 1, Art. III74 Ibi%.75 Sec. Art. III
Lice$#e +ee#Mt"e# l% c$#titte " re#tr"i$t $ the +ree%/ + r#hi! "# the"re "ct"ll i$ the $"tre + " c$%iti$ r !er/it + the eerci#e + the ri0ht.
Ceer, the 5$#titti$ r the Free erci#e + 'eli0i$ cl"#e %e# $t !rhibiti/!#i$0 " 0e$er"ll "!!lic"ble #"le# "$% #e t" $ the #"le + reli0i# /"teri"l#b " reli0i# r0"$i"ti$. (#ee Tolentino vs&ecretar# of 2inance, 23 S5'A 63
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he $$-i/!"ir/e$t rle, heer, %e# $t "!!l t !blic tilit +r"$chi#e #i$ce" +r"$chi#e i# #b:ect t "/e$%/e$t, "lter"ti$ r re!e"l b the 5$0re## he$ the!blic i$tere#t # re=ire#.
24
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10. Sta$es of Taxation
1.1evy
/etermination of the persons, property or excises to be taxed,
the sum or sums to be raised, the due date thereof and the time andmanner of levying and collecting taxes.
'. Assessment and $ollection
he manner of enforcement of the obligation on the part of thosewho are taxed.==
he two processes together constitute the
Gtaxation system.H (. )ayment
he act of compliance by the taxpayer, including such options,schemes or remedies as may be legally available.
. 0efund
he recovery of any tax alleged to have been erroneously orillegally assessed or collected, or of any penalty claimed to have beencollected without authority, or of any sum alleged to have beenexcessively, or in any manner wrongfully collected.
%. Definition& Nature& and Characteristics of Taxes
/enitionaxes are the enforced proportionalcontributions frompersons and property levied by the law-making body of the#tate by virtue of its sovereignty for thesupport ofgovernment and for public needs.
%ature
$haracteristics
h
eyarenotarbitrar
y exactions butcontributions
levied by authorityof law, and by somerule of proportionwhich is intendedto ensureuniformity of contribution and ajust apportionmentof the burdens ofgovernment.
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1. It is levied by the law-making body
of the #tate.=?
2. It is an enforced contribution.=>
3. It
is generallypayable inmoney.?@
77 hi# i$cl%e# !"/e$tb the t"!"er "$% i#re+erre% t "# t"
"%8he!ertt"i#"le0i#l"tie!erhich$%erthe5$#titti$$l5$0re##c"$eerci#ethr0hthee$"ct/e$t+l"#.Accr%i$0l,thebli0"ti$t!"t"e#i#"#t"ttrli"bilit.
7
l$t"r!"/e$t r
%$"ti$. Iti# $t%e!e$%e$t$ the ill r
c$tr"ct"l "##e$t, e!re##r i/!lie%, + the !er#$
t"e%. "e# "re $tc$tr"ct# bt !#itie "ct# +the 0er$/e$t.
2
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4. It is proportionate in character.?"
5. It is levied on persons or property.?'
6. It is levied for public purpose orpurposes.?(
7. It is levied by the #tate which has
jurisdiction over the persons or property.?
12. 'e(uisites of a )alid tax
1) It should be for a public purpose
2) he rule of taxation should be uniform
3) ither the person or property taxed be within the jurisdiction
of the taxing authority
4) he assessment and collection be in consonance with the dueprocess clause
5) he tax must not infringe on the inherent and constitutional
limitations of the power of taxation.?8
13.Tax as distin$uished from other forms of exactions
1.ari&
5ay be used in three D(E senses
1.A book of rates drawn usually in alphabetical order containing
the names of several kinds of merchandise with the corresponding
duties to be paid for the same.
2. /uties payable on goods imported or exported.?9
3. he system or principle of imposing duties on theimportation6exportation of
goods.
80 " i# " !ec$i"r br%e$ H "$ e"cti$ t be %i#ch"r0e% "l$e i$ the +r/ +/$e hich /#t be i$ le0"l te$%er, $le## ="li?e% b l", #ch "# 'A 3
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85 "e# "re the li+ebl% + the 0er$/e$t "$% #hl% be cllecte% itht$$ece##"r hi$%r"$ce. Kt their cllecti$ #hl% $t be t"i$te% ith "rbitr"ri$e##86 P.G. . 23'are classied accordingly
and are accorded di&erent tax treatments, in accordance withschedules characteri!ed by graduated tax rates. #ince these types ofincome are treated separately, the allowable deductions shall likewisevary for each type of income.
#chedular system
here are di&erent tax rates
+lobalsystem
here is a
single taxrate
here are di&erentcategories of taxable
inco
me he
re is
no need for
classicati
on as alltaxpayers
are
subjected
to a singletax rate.
Bsually
used in
the
income
taxatio
n of
Bsuallyapplied
to
corpora
tions.
individ
uals
c.
#emi-schedular orsemi-global tax
system
A syste
mwherethec
ompensation,businessor
professionalincome,capitalgainandpassiveincomenotsubjectto naltax, andotherincomeareaddedtogether toarrive
at thegrossincome,andafterdeducting thesum ofallowabledeductionsfrombusiness orprofessionalincome,capital
gain and passiveincome notsubject to naltax, and otherincome, in thecase of corporations, aswell as personaland additionalexemptions, inthe case of individualtaxpayers, thetaxable income issubjected to oneset of graduatedtax rates methodof taxation underthe law.
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9
2 c
/!e$#"ti$,b#i$e#
# r!r+e##i$"l
i$c/e
93 "!!r"ch #e%i$ the Phili!!i$e#
3 2
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2. :eatures of the )hilippine
Income ax 1aw a. /irect
tax
4ne assessed upon the property, person, business income, etc.of those who pay
them.
b. )rogressive
he tax rates increase as the tax base increases. In certain
cases, however, nal taxes are imposed on passive income.>
c. $omprehensive
he )hilippine Income tax law adopted the so-called
Gcomprehensive tax situsH K comprehensive in the sense that it
practically applies all possible rules of tax situs.
4. #emi-schedular or semi-global tax system>8
3.$riteria in Imposing )hilippine Income ax
1.$iti!enship )rinciple
A citi!en of the )hilippines is subject to )hilippine income tax
(1)on his worldwide income, if he resides in the )hilippines, or
(2) only on his income from sources within the )hilippines, if he
*ualies as nonresident citi!en.
2. 0esidence )rinciple
A resident alien is liable to pay income tax on his income from
sources within the )hilippines but exempt from tax on his income
from sources outside the )hilippines.c. #ource )rinciple
An alien is subject to )hilippine income tax because he derivesincome from sources within the )hilippines. hus, a nonresident alienis liable to pay )hilippine income tax on his income from sources
within the )hilippines>9despite the fact that he has not set foot in the)hilippines.
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94 he i$%ii%"l i$c/e t" ##te/, i$ the /"i$, i# !r0re##ie i$ $"tre
95 #!r"96 #ch "# %ii%e$%, i$tere#t, re$t, r r"lt
3
3
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4.ypes of )hilippine Income ax
1.)resumptive Income ax K A scale of income taxes is
imposed in relation to a group of person3s actual expenditure and
the presumed income.
2. $omposite ax K A tax consisting of a series of separate *uasi-personal taxes, assessed on the particular source of income with asuperimposed personal tax on the income as a whole.
3. Bnitary Income ax K Incomes are arranged according to
source. he separate items are added together and the rate applied to
the resulting total income.
5.axable )eriod
a. $alendar )eriod
A period of twelve D"'E months commencing from
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97e. Feb. 1 t D"$. 31
34
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6.Finds of axpayers
a. Individual axpayers
1)$iti!ens
1)0esident citi!ens>?
$iti!ens of the )hilippines who are residing therein.
bE %on-resident citi!ens>>
1. A citi!en of the )hilippines who establishes to the satisfactionof the $ommissioner of Internal 0evenue D$I0E the fact of his physicalpresence abroad with a denite intention to reside therein.
2.A citi!en of the )hils. who leaves the country during thetaxable year to reside abroad, either as immigrant or for employment
or on permanent basis.
3. A citi!en of the )hils. who works and derives from abroad andwhose employment thereat re*uires him to be physically presentabroad most of the time during the taxable year.
4.A citi!en who has been previously considered as non-resident
citi!en and who arrives in the )hils. at any time during the taxable
year to reside permanently in the country."@@
5.A citi!en who shall have stayed outside the )hils. for "?( days
or more by the end of the year."@"
i$c/e
99 ""ble +r i$c/e %erie% ithi$ the Phili!!i$e# b"#e% $ t""ble (i.e., $et)i$c/e
100 Ce #h"ll be c$#i%ere% " '5 +r the t""ble e"r i$ hich he "rrie# i$ the Phil#.
ith re#!ect t hi#
i$c/e %erie% +r/ #rce# "br"% $til the %"te + hi#"rri"l i$ the Phil#. 1
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i$ter$"ti$"l tr"%e i# tre"te% "# "$ er#e"# c$tr"ct rer.Le$0th + #t" i# i$%ic"tie + i$te$ti$. A citie$ + the Phili!!i$e# h #h"ll h"e
#t"e% t#i%e the Phili!!i$e# +r 183 %"# r /re b the e$% + the e"r i# " $$-re#i%e$t citie$. Ci# !re#e$ce "br"%, heer, $ee% $t be c$ti$#. E''1-79
3
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2)Aliens"@'
1)0esident aliens
hose whose residence are within the )hilippines but who are
not citi!ensthereof."@(bE %on-resident alien"@
hose not residing in the )hils. and who are notciti!ensthereof."@8
D"E ngaged in trade or
business An alien who stays in the )hilippines for
more than "?@ days."@9
1h"t /"4e# "$ "lie$ " re#i%e$t )r $)$-re#i%e$t "lie$ i#
hi# i$te$ti)$ ithre0"r%
t the le$0th"$%
$"tre + hi# #t". h#". $e h c/e# t the Phili!!i$e# +r " %e?$ite !r!#e hich i$ it# er $"tre/"
be !r/!tl "cc/!li#he% i# $t " re#i%e$t citie$.b. $e h c/e# t the Phili!!i$e# +r " %e?$ite!r!#e
hich i$ it#
er $"trel%
re=ire "$ ete$%e% #t", "$% t th"t e$%, /"e# hi# h/e te/!r"ril i$ the
Phili!!i$e#, bec/e# " re#i%e$t, th0h it /" be hi# i$te$ti$ "t "ll ti/e# t retr$t hi# %/icile "br"% he$ the !r!#e +r hich he c"/e h"# bee$ c$#//"te%r "b"$%$e%. (Sec. , '' 2)
Le$0th + #t" i# i$%ic"tie + i$te$ti$.A$ "lie$ h #h"ll h"e #t"e% i$ the Phili!!i$e# +r /re th"$ $e (1) e"r b the
e$% + the t""ble e"r i# " re#i%e$t "lie$A$ "lie$ h #h"ll c/e t the Phili!!i$e# "$% #t" +r "$ "00re0"te !eri% +
/re th"$ $e h$%re% ei0ht (18
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104 A /ere N"ti$0 i$te$ti$, i$%e?$ite "# t ti/e, t retr$ t "$ther c$tr i#$t #Bcie$t t
c$#tittehi/ " tr"$#ie$t.Fr t" !r!#e#, " re#i%e$t "lie$ i#;
1.A$ "lie$ h lie# i$ the Phil#. ith $ %e?$ite i$te$ti$ t #t" "# " re#i%e$t.
2. $e h c/e# i$ the Phil#. +r %e?$ite !r!#e# hich i$ it# er $"tre l%
re=ire "$ ete$%e% #t" "$% t th"t e$%, /"e# hi# h/e te/!r"ril i$ the Phil#.3.A$ "lie$ h #t" ithi$ the Phil#. +r /re th"$ 12 /$th# +r/ the %"te + hi#
"rri"l i$ the Phil#. 1
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D'E %ot engaged in trade or business
An alien who stays in the )hilippines for "?@ days or less."@=
(3)#pecial $lass of Individual mployees
1)5inimum wage earner
A worker in the private sector paid the statutory minimum
wage, or to an employee in the public sector with compensation
income of not more than the statutory minimum wage in the non-
agricultural sector where he6she is assigned."@?
2y virtue of the passage of 0.A. >8@, minimum wage earners
are exempted from the payment of the net income tax."@>
bE $orporations""@
"E /omestic corporations
$reated or organi!ed in the )hils. or under its laws."""
'E :oreign corporations
$reated, organi!ed or existing under any laws other than thoseof the )hils.
D"E 0esident
ngaged in trade or business""'within the )hils.
1
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D'E %on-resident
%ot engaged in trade or business within the )hils.
c. )artnerships""(
)artnership is a contract whereby two or more persons bind
themselves to contribute money, property, or industry to a common
fund with the intention of dividing the prots among themselves.""
d. +eneral )rofessional )artnerships
:ormed by persons for the role purpose of exercising their
common profession, no part of the income of which is derived from
engaging in any trade L business.""8
e. statesand rusts
state rust
he mass of property, rights and
obligations left behind by the
decedent upon his death.""9
An arrangementcreated by willor co-agreementunder which titleto property ispassed toanother forconservation or
investment withthe income
therefrom andultimately the
corpus""= to bedistributed inaccordance withthe directions ofthe creator asexpressed in thegoverning
instrument.""?
113 A$ r%i$"r b#i$e##
!"rt$er#hi! i# c$#i%ere% "# "
cr!r"ti$ "$% i# th# #b:ect
t t" "# #ch. P"rt$er# "re
c$#i%ere% #tchl%er# "$%,
there+re, !r?t# %i#tribte% t
the/ b the !"rt$er#hi! "re
c$#i%ere% "# %ii%e$%#.114 P"rt$er#hi!#, $/"tterh cre"te% rr0"$ie%, i$cl%i$0 :i$te$tre# r c$#rti/#, "ret""ble. >h"t "re t""ble$re0i#tere% !"rt$er#hi!#Ohe S5 i$ vangelista v. CIR$45, Phil 14
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i$cl%e i$ their re#!ectieretr$# their %i#tribtie#h"re# + the $et i$c/e +the e#t"te.
2. #t"te# $%er :%ici"l#ettle/e$t - "re #b:ectt i$c/e t" i$ the
#"/e/"$$er"#i$%ii%"l.
2- I$c/
e receie%
%ri$0 the#ettle/e$t +the e#t"te i#t""ble tthe ?%ci"r(0"r%i"$,eectr,
tr#tee, "$% "%/i$i#tr"tr).
3- he retr$ #hl% be?le% b eectr r"%/i$i#tr"tr + thetr#t.
117 !ri$ci!"l
118 (2) i$%# + r#t 38
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f. $o-ownerships"">
It is created whenever the ownership of an undivided thing or
right belongs to di&erent persons.
7. Income
axation
a.
/enitio
n
A tax on all yearly prots arising from property, profession,
trade or business, or a tax on person3s income, emoluments, protsand the like."'@
b. %ature
It is generally regarded as an excise tax. It is not levied upon
persons, property, funds or prots but on the privilege of receiving
said income or prot.
1. Irrec"ble r#t - i# c$#i%ere% "# " #e!"r"te t"!"er.
2.'ec"ble r#t - i# $e here "t "$ti/e the !er t ree#t the title t "$!"rt + the corpus+
the tr#t i# e#te%
(1) i$ the 0r"$tr (cre"tr + the tr#t) either "l$e r i$ c$:$cti$ ith "$!er#$ $t h"i$0 " #b#t"$ti"l "%er#e i$tere#t i$ the %i#!#iti$ + #ch !"rt + thecr!# r the i$c/e there+r/; r
(2) i$ "$ !er#$ $t h"i$0 " #b#t"$ti"l "%er#e i$tere#t i$ the %i#!#iti$ +#ch !"rt + the cr!# r the i$c/e there+r/.
he t" #h"ll be i/!#e% $ t""ble i$c/e + the 0r"$tr.119&e$er"l rle 5-$er#hi! i# ee/!t +r/ i$c/e t" bec"#e the "ctiitie# +the c-$er# "re#"ll li/ite% t the @!re#er"ti$ + the !r!ertie# $e% i$ c//$ "$% thecllecti$ + the i$c/e there+r/.
ce!ti$# (>he$ c-$er#hi! i# #b:ect t t").
(1) >he$ the i$c/e + the c-$er#hi! i# i$e#te% b the c-$er# i$ theri$c/e-!r%ci$0 !r!ertie# r i$c/e-!r%ci$0 "ctiitie#, "$%
(2) >he$ there i# $ "tte/!t t %ii%e i$herite% !r!ert +r /re th"$ te$ (1
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#e!"r"te "$% i$%ii%"l c"!"cit.Fili$0 + retr$
he $er# #h"ll re!rt "$% i$cl%e i$ their re#!ectie !er#$"l i$c/e t"retr$# their #h"re# + the $et i$c/e + the c-$er#hi!.
e#t t %eter/i$e hether c-$er#hi! i# " t""ble $re0i#tere% !"rt$er#hi!Fi$% t hether the heir# h"e /"%e #b#t"$ti"l i/!re/e$t# $ the i$herite%
!r!ert. I+ #, the i/!lic"ti$ i# th"t the ill e$0"0e i$ b#i$e## +r !r?t("$0eli#t" Gctri$e). I+ th"t h"!!e$#, the c-$er#hi! ill be t"e% "# "$$re0i#tere% !"rt$er#hi!.12
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3.+eneral principles
1.A citi!en of the )hilippines residing therein is taxable on all
income derived from sources within and without the )hilippines.
2.A non-resident citi!en is taxable only on income derived fromsources within the )hilippines.
3.An individual citi!en of the )hilippines, who is working andderiving income from abroad as an overseas contract worker, istaxable only on income derived from sources within the )hilippines.)rovided, that a seaman who is a citi!en of the )hilippines and whoreceives compensation for services rendered abroad as a member ofthe complement of a vessel engaged exclusively in international tradeshall be treated as an overseas contract worker.
4.An alien individual, whether or not a resident of the)hilippines, is taxable only on income derived from sources within the
)hilippines.
5. A domestic corporation is taxable on all income derived from
sources within and without the )hilippines.
6. A foreign corporation, whether engaged or not in trade or
business in the )hilippines, is taxable only on income derived from
sources within the )hilippines.
8. Income
1./enition
It means cash or its e*uivalent coming to a person within aspecied period, whether as payment for services, interest or protfrom investment. It covers gain derived from capital, from labor, orfrom both combined, including gain from sale or conversion of capital
assets."'"
b. %ature
All wealth which Mows to the taxpayer other than a mere returnof capital.
It is an amount of money coming to a person6corporation withina specied time, whether as payment for services, interest or protfrom investment. Bnless otherwise specied, it means cash or itse*uivalent. Income can also be thought of as a Mow of the fruits of
oneNs labor."''
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121It %e$te# the "/$t + /$e r !r!ert receie% b " !er#$ r cr!r"ti$ithi$ " #!eci?e% ti/e, hether "# !"/e$t +r #erice#, i$tere#t#, r !r?t# +r/i$e#t/e$t# (2isher vs. Trinidad, 43 Phil 973)
I$c/e i# $t /erel i$cre"#e i$ "le + !r!ert; bt " 0"i$, " !r?t i$ ece## +c"!it"l "# " re#lt + ech"$0e tr"$#"cti$#.122Con0i v. Court of Ta Appeals
4
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Income includes earnings, lawfully or unlawfully ac*uired,without consensual recognition, express or implied, of an obligation torepay and without restriction as their disposition.
3.7hen income is taxable
1)xistence of income
here must be gain K a value received in the form of cash or its
e*uivalent as a result of rendition of service or earnings in excess of
capital invested."'(
2)0eali!ation of income
1)ests of 0eali!ation
Bnless income is deemed reali!ed, then there is no taxableincome.
0evenue is generally recogni!ed when both conditions are met
1.he earning process is complete or virtually complete and
2.An exchange has taken place."'
2)Actual vis-;-vis $onstructivereceipt
Actual receipt
Income may be actual receipt or
physical receipt.
$onstructi
ve receipt
7hen moneyconsideration orits e*uivalentisplaced at the
control of the
person whorendered theservice withoutrestrictionby the payor."'8
123A /ere e!ect"ti$ +!r?t# i# $t "$ i$c/e
A tr"$#"cti$ hereb
$thi$0 + ech"$0e"ble"le c/e# t r i#receie% b the t"!"er%e# $t 0ie ri#e t rcre"te t""ble i$c/e.
Ite/# r "/$t#receie% hich % $t "%%t the t"!"er# $et rthr re%$% t hi# be$e?t##ch "# "/$t# /erel%e!#ite% r e$tr#te% thi/ "re $t c$#i%ere% "#0"i$# (CIR vs. Tours
&pecialist,183 S5'A4
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" !"rt$er i$ the !r?t# + " 0e$er"l !"rt$er#hi!41
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3)0ecognition of income
1. here is income, gain or prot
2. he income, gain or prot is received or reali!ed during thetaxable year
3. he income gain or prot is not exempt from income tax
4)5ethods of accounting
1)$ash method vis-;-vis Accrualmethod
$ash method Accrual method
0ecognition of income and expensedependent on inMow or outMow of
cash."'9
+ains andprots areincluded ingross incomewhen earnedwhetherreceived or not,and expensesare allowed asdeductions when
incurred,although not yetpaid. It is theright to receiveand not theactual receiptthat determinesthe inclusion ofthe amount ingross income
bE
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Installmentpayment /eferred payment
)ercentagecompletion
Appropriate whencollections extend
over relativelylong periods oftime and there isa strongpossibility thatfull collection willnot be made.
Initialpayments
exceed'8O ofthegrosssellingpriceandsuchtransaction
shall betreatedas cash
salewhichmakestheentiresellingpricetaxablein themonth
of sale. )ersonswho
segrossincomeisderivedfromlong-
termcon
tractsshallreportsuchincome
uponthebasi
s ofpercentage ofcompletion.
126 /e"$i$0, rec0$ie thei$c/e he$ "ct"ll receie thec"#h !"/e$t +r
the
#"le,"$%rec
0$i
ethee!e$#
e
he$"ct
"ll !" c"#h +r
the e!e$#e127 i$ l$0
ter/ c$tr"ct#
42
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4. ests in determining whether income is
earned for tax purposes
1)0eali!ation test
%o taxable income until there is a separation from capital ofsomething of exchangeable value, thereby supplying the reali!ation or
transmutation which would result in the receipt of income."'?
2) $laim of right doctrine or /octrine of
ownership, command, or control
A taxable gain is conditioned upon the presence of a claim of
right to the alleged gain and the absence of a denite unconditional
obligation to return or repay.
he power to dispose of income is the e*uivalent of ownershipof it. he exercise of that power to procure the payment of income toanother is the enjoyment and hence, the reali!ation of the income byhim who exercises it. he dominant purpose of the revenue laws is thetaxation of income to those who earn or otherwise create the right toreceive it and enjoy the benet of it when paid.
3) conomic benet test, /octrine of
proprietary interest
Income reali!ed is taxable only to the extent that the taxpayer is
economically beneted.
Any economic benet to the employee that increases his networth is taxable.
E #everance test
here is no taxable income until there is a separation fromcapital of something which is of exchangeable value "'> therebysupplying the reali!ation or transmutation which would result in thereceipt of income. hus, income is not taxable unless separated or
severed from the capital or labor that bore it.
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128 here /#t be #e!"r"ti$ +r/ c"!it"l + #/ethi$0 + ech"$0e"ble "le (e.0., #"le+ "##et)
129 isner vs. acomer, 22 JS 18943
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9. +ross Income
a.
/enitio
n
All income derived during a taxable year by a taxpayer from
whatever source, whether legal or illegal,"(@including the following
items
1. +ross income derived from the conduct of trade or businessor the exercise of a
profession.
2. 0ents3. Interests
4. )ri!es and winnings
8.$ompensation for services in whatever form paid, including,but not limited
tofees, salaries, wages, commissions, and similar items
6.Annuities
7. 0oyalties
8. /ividends
9. +ains derived from dealings in property
10. )ensions
11. )artnerNs distributive share from the net income of the
general professional partnership."("
130 A# #ch, i$c/e i$cl%e# the +lli$0, "/$0 ther#
1.re"#re +$%;
2.P$itie%"/"0e# re!re#e$ti$0 !r?t l#t;3.A/$t receie% b /i#t"e;
4.5"$cell"ti$ + the t"!"er i$%ebte%$e##;
5.'ecei!t + #ri# i$tere#t;
6. Ille0"l 0"i$#;
7."e# !"i% "$% cl"i/e% "# %e%cti$ #b#e=e$tl re+$%e%;
8.K"% %ebt recer.
131 he "be e$/er"ti$ c"$ be #i/!li?e% i$t ?e () c"te0rie#
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1.5/!e$#"ti$ I$c/e - i$c/e %erie% +r/ re$%eri$0 + #erice# $%er "$e/!ler-e/!lee rel"ti$#hi!.
2. Pr+e##i$"l I$c/e - +ee# %erie% +r/ e$0"0i$0 i$ "$ e$%e"r re=iri$0#!eci"l tr"i$i$0 "# !r+e##i$"l "# " /e"$# + lielih%, hich i$cl%e#, bt $tli/ite% t, the +ee# + 5PA#, l"er#, e$0i$eer# "$% the lie.
3. K#i$e## I$c/e - 0"i$# r !r?t# %erie% +r/ re$%eri$0 #erice#, #elli$0
/erch"$%i#e, /"$+"ctri$0 !r%ct#, +"r/i$0 "$% l$0-ter/ c$tr"ct#.4. P"##ie I$c/e - i$c/e i$ hich the t"!"er /erel "it# +r the "/$t tc/e i$, hich i$cl%e#, bt $t li/ite% t i$tere#t i$c/e, r"lt i$c/e, %ii%e$%i$c/e, !rie# "$%
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b. $oncept of income from whatever sourcederived
Implies the inclusion of all income under the law, irrespective of
the voluntary or involuntary action of the taxpayer in producing the
gains."('
All income not expressly excluded or exempted from the class of
taxable income, irrespective of the voluntary or involuntary action of
the taxpayer in producing the income."((
c. +ross Income vis-;-vis %et Income vis-;-visaxable
Income
+ross
Income %et Income or axable IncomeAs to deductions
Allows nodeductions Allows deductions
As to exemptions+rants noexemptions +rants exemptions
As totax base
+ross Income %et Income
Advantages6/isadvantages
#implies the income
tax system
#ubstantial reduction in corruptionand tax evasion as the exercise of
discretion, to allow or disallowdeductions, is dispensed with.
5ore administratively feasible
/oes away with wastage of
manpower and supplies
$onfusingandco
mplexprocessof
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ling income taxreturn
Julnerable to corruption onaccount of margin of discretion in
the grant of deductions
)rovides
e*uitable
releifs in the
form of
deductions,
exemptions
and tax
credit
ax audit
minimi!es fraud
i$$i$0#.. &"i$# +r/ Ge"li$0# i$
Pr!ert H It i$cl%e# "ll
i$c/e%erie% +r/the%i#!#iti$ +!r!ert
hether re"l,!er#$"l r/ie%.
132 It
i$cl%e# ille0"l 0"i$# "ri#i$0+r/ 0"/bli$0, betti$0,ltterie#,etrti$ "$% +r"%.
133 &tierre . 5I', 5Ac"#e
4
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4. $lassication of Income as to #ource
1) +ross income and taxable income
from sources within the )hilippines
1) Interests
1) Interests derived from sources within the )hils.
2) Interests on bonds, notes or other interest-bearing
obligations of residents, corporate or otherwise."(
2) /ividends
1):rom a domestic corporation, and
2) :rom a foreign corporation 8@O or more of the grossincome of which for the (-year period ending with the closeof the taxable year preceding the declaration of suchdividends, or for such part of such period as the corporationwithin the )hils."(8has been in existence, was derived fromsources. It must beonly in an amount which bears the sameratio to such dividends as the gross income of thecorporation for such period derived from sources within the)hilippines bears to its gross income from all sources.
3) $ompensation for labor or personal services performed in the
)hils."(9
4) 0entals and 0oyalties from property located in the )hils . or
from any interest in such property, including rentals or royalties for K
1) he use of, or the right or privilege to use in the )hils.any copyright, patent, design or model, plan, secret formula orprocess, goodwill, trademark, trade brand or other like propertyor night
2) he use of, or the right to use in the )hils. any
industrial, commercial or scientic e*uipment
3)he supply of scientic, technical, industrial or
commercial knowledge or information
4) he supply of any assistance that is ancillary andsubsidiary to, and is furnished as a means of enabling theapplication or enjoyment of, any such property or right as ismentioned in paragraph DaE, any such e*uipment as ismentioned in paragraph DbE or any such knowledge orinformation as is mentioned in paragraph DcE
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134 Sec. 42, (A)( 1)
135 I%. (A)(2)136 I%. (A)(3)
46
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5) he supply of services by a nonresident person or hisemployee in connection with the use of property or rightsbelonging to, or the installation or operation of any brand,machinery or other apparatus purchased from such nonresidentperson
6) echnical advice, assistance or services rendered inconnection with technical management or administration of anyscientic, industrial or commercial undertaking, venture,project or scheme and
7) he use of, or the right to use
1. motion picture lms
2. lms or video tapes for use in connection withtelevision and
3. tapes for use in connection with radiobroadcasting
5) +ains, prots, and income from the sale of real propertylocated in the )hils. and
6) +ains, prots, and income from sale of personal property,
treated as derived entirely from the country where it is sold."(=
2) +ross income and taxable income
from sources without the )hilippines1) Interest other than those derived from sources within the
)hils.
2) /ividends other than those derived from sources
within the )hils. a. /ividends from foreign
corporations in general and
137 ce!ti$ t the rle 0"i$ +r/ the #"le + #h"re# + #tc i$ " %/e#ticcr!r"ti$ hich i# tre"te% "# %erie% e$tirel +r/ #rce# ithi$ the Phil#.re0"r%le## + here the #h"re# "re #l%.
P"##"0e + title te#t it i# the !re"ili$0 ie th"t i$ "#cert"i$i$0 the !l"ce + #"le,the %eter/i$"ti$ + here "$% he$ the title t the 0%# !"##e# +r/ the #eller tthe ber i# %eci#ie.
$/er"ti$ i$ Secti$ 42 $t "ll-i$cl#ie.I$ the c"#e + 5//i##i$er #. Kriti#h er#e"# Air"# 5r!r"ti$ (KA5) E149
S5'A 39, the S!re/e 5rt hel%@ Secti$ 37 ($ Secti$ 42) b it# l"$0"0e, %e# $t i$te$% the e$/er"ti$
t be ecl#ie. It /erel %irect# th"t the t!e# + i$c/e li#te% therei$ be tre"te% "#
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i$c/e +r/ #rce# ithi$ the Phil#. " cr#r re"%i$0 + the #ecti$ ill #h th"t it%e# $t #t"te th"t it i# "$ "ll-i$cl#ie e$/er"ti$, "$% th"t $ ther i$% +i$c/e /" be # c$#i%ere%
he S!re/e 5rt +rther hel%@ he "b#e$ce + Ni0ht !er"ti$# t "$% +r/ the Phil#. i# $t %eter/i$"ti$ +
the #rce + i$c/e $ the #it# + i$c/e t""ti$. A%/itte%l, KA5 "# "$ -li$e i$ter$"ti$"l "irli$e "t the ti/e !erti$e$t t thi# c"#e. he te#t + t""bilit i# the#rce, "$% the #rce + "$ i$c/e i# th"t "ctiit hich !r%ce% the i$c/e.J$=e#ti$"bl the !"##"0e %c/e$t"ti$# i$ the#e c"#e# ere #l% i$ the Phil#."$% the ree$e there+r/ "# %erie% +r/ " b#i$e## "ctiit re0l"rl !r#e%ithi$ the Phil#.
47
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2. /ividends derived from foreign corporations, 8@O or moreof the gross income of which for the (-year periodpreceding the declaration of dividends.
3) $ompensation for labor or personal services performed
outside the )hils.
4) 0entals or royalties from property located outside the )hils.or from any interest in such property including rentals or royalties forthe use of or for the privilege of using outside the )hils., patents, etc.
5) +ains, prots and income from the sale of real propertylocated outside the )hils.
6) +ains, prots and income from the sale of personal propertylocated outside the
)hils., and
7) Income derived from the purchase of personal property
within and its sale outside the )hils."(?
3) Income partly within or partly without
the )hilippines
1) Income from transportation such as foreign steamship
companies whose vessel touch the )hil. ports"(>and other servicesrendered partly within and partly outside the )hils. such as foreign
corporations carrying on the business of transmission of telegraphand cable messages between points outside the )hils."@
2) Income from the sale of personal property produced in wholeor in part by the taxpayer within and sold outside the )hils. orproduced by the taxpayer outside and sold within the )hils.
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138 Sec. 42139 Sec. 163, 'e0l"ti$#
140 Sec. 164, i%.48
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5.#ources of income subject to tax
1) $ompensation Income""
All remuneration for services performed by an employee for his
employer, including the cash value of all remuneration paid in anymedium other than cash."'
It includes all remuneration for services rendered by an
employee for his employer unless specically excluded under the
%I0$."(
2):ringe 2enets"
1)#pecial treatment of fringebenets
Applied to fringe benets given or furnished to managerial or
supervising employees and not to the rank and le."8
bE /enition
Any good, service or other benet furnished or granted in cash
or in kind by an employer to an individual employee, except rank and
le employee.
141 Fr/# + 5/!e$#"ti$
1./$e
2. i$ i$%5/!e$#"ti$ !"i% t "$ e/!lee + " cr!r"ti$ i$ it# #tc i# t be tre"te% "#
i+ the cr!r"ti$ #l% the #tc +r it# /"ret "le "$% !"i% t the e/!lee i$c"#h.
Lii$0 ="rter# +r$i#he% t the e/!lee i$ "%%iti$ t c"#h #"l"r. he re$t"l"le #hl% be re!rte% "# i$c/e.
*e"l#0ie$ t e/!lee, the "le there+ #b#titte# i$c/e.78(A) Iti$cl%e#1. S"l"rie# "$% "0e#
2. 5//i##i$#3.i!#
4. All"$ce#5. K$#e#
6. Fri$0e Ke$e?t# + r"$ "$% ?lee/!lee# It %e# $t i$cl%ere/$er"ti$ !"i%
Fr "0ricltr"l l"br !"i% e$tirel i$ !r%ct# + the +"r/ here the l"bri# !er+r/e%, r Fr %/e#tic #erice i$ " !ri"te h/e, rFr c"#"l l"br $t i$ the cr#e + the e/!lerQ# tr"%e r b#i$e##, rFr #erice# b " citie$ r re#i%e$t + the Phili!!i$e# +r " +rei0$ 0t r "$ i$tlr0"$i"ti$.
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143 Sec. 2.78.1, '' 2-98144 Sec. 33
145 he +ri$0e be$e?t cere% re+er# t th#e e$:e% b /"$"0eri"l "$%#!eri#r e/!lee#146 Pr#"$t t 'ee$e 'e0l"ti$# . 3 H 98 (%"te% *" 21, 1998) i/!le/e$ti$0#ecti$ 33 + the " 5%e.
4
9
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cE axable and non-taxable fringebenets
axable fringe benets %on-taxable fringe benets
"E Cousing )rivileges"E :ringe benets which areauthori!ed andexempted from tax under speciallaws
DaE 1ease of residential property forthe use of the employee as hisusual place of
'E $ontributions of the employerfor the
residence.
benet of the employee toretirement,
DbE 0esidential )roperty owned by
insurance and hospitali!ationbenet plans
employer and assigned toemployee as his
(E 2enets given to the rank andle
usual place of residence.employees, whether granted undera
DcE 0esidential property purchasedby
collective bargaining agreement ornot
EDe minimisbenetsemployer on installment basis forthe use ofemployer
as his usual place ofresidence. 8E 7hen the fringe benet is
re*uired by thenature of, or necessary to thetrade, business
DdE 0esidential property purchasedby or profession of the employer
0 and ownership is transferred to as
his usual place of residence.9E 7hen the fringe benet is fortheconvenience of the employer. hisis known
DeE 0esidential property transferredto
as mployer3s $onvenience0ule."88
employee at less than employer3sac*uisition
cost."9
'E Cousehold xpenses K refer toexpensesof the employee paid by theemployer forhousehold personnel or other
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personal
expenses, which shall includeDaE
salaries of householdhelper
DbE personal driver of the
employeeDcE
payment for homeownerassoc.,
etc.(E Interest on loan at less than
market rate"=
146 $ H t""ble C#i$0 Fri$0e Ke$e?t#(1) C#i$0 !riile0e + /ilit"r Bci"l# + AFP
(2) C#i$0 $it, hich i# #it"te% i$#i%e r "%:"ce$t t the !re/i#e + "b#i$e## r +"ctr. A h#i$0 $it i# c$#i%ere% "%:"ce$t i+ it i# lc"te% ithi$ the
/"i// < /eter# +r/ the !eri/eter + the b#i$e## !re/i#e#.(3)C#i$0 be$e?t 0r"$te% t e/!lee# $ " te/!r"r b"#i# $t ecee%i$0three (3) /$th#
147 I+ the e/!ler le$%# /$e t hi# e/!lee
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E xpenses for :oreign ravel
+eneral rule
xpenses for foreign travelinsured by the employee and6or
family members of the employeeborne by the employer shall betreated as taxable fringe benetsof the employee.
xcept
7here the expenses for foreigntravel paid by the employer forthe employee are for the purposeof attending business meeting or
convention. he exemption coversonly the following expenses
1) Inland travel expenses
except lodging cost in hotel
averaging B#P (@@ or less per
day"?and
2) $ost of economy or
business class airline ticket.">
5) 5embership fees, dues andother expenses borne by the
employer for his employee, insocial or athletic clubs or other
similar organi!ations.15
6)1ife or Cealth Insurance -
+eneral rule
he cost of life or health
insurance and other non K lifeinsurance premiums or similaramounts in excess of what the law
Free + i$tere#t r "t " r"te ler th"$ 12 (r !re"ili$0 /"ret r"te) the i$tere#t+re0$e b the e/!ler r the %iere$ce + the i$tere#t "##/e% b the e/!ler"$% the 12 r"te #h"ll be tre"te% "# t""ble +ri$0e be$e?t.
A!!lic"ble t i$#t"ll/e$t !"/e$t r l"$ ith i$tere#t r"te ler th"$ 12#t"rti$0 D"$"r 1, 1998. 1Sec. 32, I'5; Sec. 2.33 E5, '' 3-98the /eeti$0# r c$e$ti$#. Liei#e, %c/e$t# "$% ei%e$ce #hi$0 the b#i$e## !r!#e+ the e/!lee# tr"el /#t be !re#e$te% theri#e, the e$tire c#t ill be c$#i%ere%t""ble +ri$0e be$e?t.
149 Ceer, i+ the ticet i# " ?r#t cl"## $e, 3
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t " +ri$0e be$e?t t".
150 he#e "re tre"te% "# t""ble Fri$0e Ke$e?t# + the e/!lee i$ +ll.1
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allows borne by the employer forhis employees shall be treated astaxable fringe benets.
xcept
1)$ontribution of the
employer for the benets of the
employee pursuant to existing
laws."8"
2) he cost of premium borneby the employer for the groupinsurance of his employees.
7)Colidays and Jacation xpense
8)5otor Jehicle
1) 5otor vehicle purchased
by employer in name of employee.
2) G$ash for the purchasedprovided by the employer, theownership is placed in the nameof the employee
3) )urchase on GInstallmentHbasis, the ownership is placed inthe name of the employee
4) G)ortionH of purchased
price shouldered by employer
5) :leet of motor vehicle
GleasedH by the employer
6) :leet of 5otor vehicles
owned and maintained byemployer."8'
151 #ch "# '.A. 8287 (SSS) r '.A. 8291 (&SIS).
152 I$ c"#e Netter# ", b, c "$% %, re0"r%le## + hether the /tr ehicle i# #e% +r the
!er#$"l !r!#e + the e/!lee "$% !"rtl +r the be$e?t + hi# e/!ler, the /$et"r
"le #h"ll be the e$tire "le + the be$e?t.
153 J$%er letter# e "$% +, the Neet + /tr ehicle# i# +r the #e + the b#i$e##"$% the e/!lee#. he "le + the be$e?t #h"ll be the re$t"l !"/e$t# (e) r the
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"c=i#iti$ c#t (+) + "ll /tr ehicle# $t $r/"ll #e% +r #"le#, +rei0ht, %elier#erice "$% $$-!er#$"l #e.
he #e + "cht hether $e% "$% /"i$t"i$e% r le"#e% b the e/!ler #h"llbe tre"te% "# t""ble +ri$0e be$e?t H the "le + the be$e?t #h"ll be /e"#re%b"#e% $ the %e!reci"ti$ + the R"cht "t "$ e#ti/"te% #e+l li+e + 2< r#.
2
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9)xpense Account
1)xpenses incurred by the
employee but paid by his
employer.
2) xpenses paid by the
employee but reimbursed by his
employer."8(
10)ducational Assistance
+eneral 0ule he cost of theeducational assistance to theemployee or his dependents
which are borne by the employershall be treated as axable :ringe2enets.
xception
1) ducation granted to employee14
2) ducational Assistancegranted to the dependentsof the employee in the
nature of educationalassistance to thedependents of theemployee through acompetitive scheme undera scholarship program ofthe company.
he #e + "ircr"+t (i$cl%i$0 helic!ter#) $e% "$% /"i$t"i$e% b the e/!ler#h"ll be tre"te% "# @b#i$e## #e "$% $t #b:ect t FK.
153 !e$#e "cc$t $t #b:ect t FK.1)e!e$#e# %l recei!te% +r i$ the $"/e + the e/!ler "$%2)he e!e$%itre# % $t !"rt"e the $"tre + !er#$"l e!e$#e# "ttribt"ble t
the e/!lee.Per#$"l e!e$#e# + the e/!lee (lie 0rcerie#) !"i% +r r rei/br#e% b the
e/!ler "re t""ble +ri$0e be$e?t#, hether r $t %l recei!te% +r i$ the $"/e
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+ the .'e!re#e$t"ti$ "$% r"$#!rt"ti$ All"$ce# ('AA) re+er# t ?e% "/$t#
hich "re re0l"rl receie% b the e/!lee# "# !"rt + their /$thl c/!e$#"ti$i$c/e. he "re $t tre"te% "# ""ble Fri$0e Ke$e?t# bt the #"/e "retre"te% "#
""ble 5/!e$#"ti$ I$c/e.154 'e=i#ite#1. %c"ti$"l 0r"$t hereb the #t% i# %irectl c$$ecte% ith the tr"%e,
b#i$e## r !r+e##i$ + the '.
2. A$% there i# " ritte$ c$tr"ct bli0"ti$0 the t re/"i$ $%er thee/!l/e$t +r " cert"i$
!eri%.
3
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(E )rofessional Income
he fees received by a professional from the practice of his
profession, provided that there is no employer-employee relationship
between him and his clients.
E Income from 2usiness
he income derived from merchandising, mining, manufacturing
and farming operations.
5) Income from /ealings in )roperty
1)ypes of )roperties
(1)4rdinary assets
)roperties held by the taxpayer in the pursuit of his profession,trade or business
1. #tock in rade
2. )roperty of a kind which would properly be included in the
inventory if on hand at the close of the taxable year
3. )roperty held by the taxpayer primarily for sale to
customers in the ordinary course of trade or business
4. )roperty used in trade or business which in subject to theallowance for depreciation and
5. 0eal property used in trade or business."89
(2)$apital assets
)roperties not specically included in the statutory denition"8=
constitutes capital assets, the prots or losses on the sale or the
exchange of which are treated as capital gains or capital."8?
he statutory denition of Qcapital assetsQ pr