Professional Documents
Culture Documents
Income Taxation Reviewer
Income Taxation Reviewer
INCOME TAXATION
IN GENERAL
Income Tax
2.
To
offset
regressive
consumption taxes.
3.
sales
and
Income v. capital
Capital is
income is the fruit.
Income
the
tree
while
SOURCES OF INCOME
What produces income?
2
For the source of income to be
considered as coming from the
Philippines, it is sufficient that
income is derived from activity
within the Philippines. IN BOACs
case, the sale of tickets in the
Philippines is the activity that
produces the income. The tickets
exchanged hands here and
payments for fares were also
made in Philippine currency. The
site of the source of the income
is the Philippines and the flow of
wealth proceeded from and
occurred in Philippine territory,
enjoying the protection accorded
by the Philippine government.
Thus, said flow of wealth should
share the burden of supporting
the government.
When
is
received?
2.
3.
actual receipt
2.
constructive receipt
2.
3.
Taxable income
The term taxable income
means the pertinent items of
gross income specified in the
NIRC, less the deductions and/or
personal
and
additional
exemptions, if any, authorized by
such types of income by the NIRC
or other special laws.
considered
TAXABLE INCOME
income
1.
Sources of income
1.
Limpan
Investment
Company
deemed
to
have
constructively received rental
payments in 1957 when they
were deposited in court due to its
refusal to receive them. [Limpan
v. CIR, 17 SCRA 703]
3
2.
3.
Severance test
Worthless debts
collected - YES
subsequently
Scholarships/fellowships YES
Stock dividends - NO
However,
if
the
preexisting proportionate interest of
the stockholder is substantially
altered, the income is considered
derived to the extent of the
benefit received.
Severance test
2.
test
3.
Moreover, if as a result of an
exchange of stocks, the person
received something of value
which
are
essentially
and
fundamentally
different
from
what
he
had
before
the
exchange, income is realized
4
within the
revenue law.
meaning
of
the
Ordinary gains
Business income
1.
Income
from
trading,
merchandising, manufacturing or
mining
2.
Income
from
profession
CLASSES OF INCOME
Kinds of taxable income or gain
1.
capital gain
2.
ordinary gain
practice
of
a.
business income
b.
compensation income
c.
d.
1.
passive income
2.
other
income
from
whatever source derived
i.e. found treasure
3.
sources
Capital gains
1.
Interest income
2.
Rentals/Leases
1.
3.
Royalties
4.
Dividends
5.
6.
7.
8.
2.
3.
5
used in the taxation of individuals
while the global approach is used
in the taxation of corporations.
schedular system
2.
global system
corporations v. individuals
2.
nationality
3.
residence
Schedular system
Global system
Individuals
a.
Resident citizens
b.
Non-resident citizens
c.
Resident aliens
d.
Non-resident aliens
i)
2.
3.
engaged in trade or
business
in
the
Philippines, or
ii)
not
engaged
in
trade or business in
the Philippines
Note: A non-resident alien individual
who shall come to the Philippines
and stay therein for an aggregate
period of more than one hundred
eighty (180) days during any
calendar year shall be deemed a
non-resident alien doing business
in the Philippines. [Section 25(A)
(1), NIRC]
2.
Corporations
a.
Domestic corporations
b.
Resident
corporations
foreign
c.
Non-resident
corporations
foreign
6
3.
Special
a.
Proprietary
educational
institutions and hospitals
that are non-profit
b.
Insurance companies
c.
General
partnerships
d.
Corporation
professional
2.
3.
4.
1.
a
general
professional
partnership; and
2.
a
joint
venture
or
consortium formed for the
purpose of undertaking
construction projects or
engaging in petroleum,
coal, geothermal and other
energy
operations
pursuant to an operating
or consortium agreement
under a service contract
with the government.
7
profession, no part of the income
of
which
is
derived
from
engaging in any trade or
business. [Section 22(B), NIRC]
Oa v. Commissioner, 45 SCRA 74
(1972): Unregistered partnership
Although
the
CFI
already
approved the project of partition of the
estate of Julia Buales among her
surviving spouse, Lorenzo Ona, and her
five children, no attempt was made to
divide the properties left by the
8
purpose, for tax purposes, at least, an
unregistered partnership is formed.
For purposes of the tax on
corporations,
the
NIRC,
includes
partnerships
except
general
professional partnerships within the
purview of the term corporation.
Note: The
income
derived
from
inherited properties may be
considered as individual income
of the respective heirs only so
long as the inheritance or estate
is not distributed or, at least,
partitioned, but the moment their
respective known shares are
used as part of the common
assets of the heirs to be used in
making profits, it is but proper
that the income of such shares
be considered as part of the
taxable
income
of
an
unregistered partnership.
Gatchalian v. Collector, 102 Phil
140
Plaintiffs contributed money to
buy a sweepstakes ticket which
subsequently won. The Supreme Court
held that they formed an unregistered
partnership.
Plaintiffs
formed
a
partnership of a civil nature since each
of them contributed money to a
common fund for the sole purpose of
dividing equally the prize which they
win.
Pascual v. Commissioner
Petitioners bought two parcels of
land in 1965, however, they did not sell
the same nor make any improvements
thereon. In 1966, they bought another
three parcels of land. It was only in
1968 that they sold the two parcels of
land after which they did not make any
additional or new purchase. The
remaining three parcels of land were
sold in 1970. Commissioner assessed
them corporate income taxes on the
co-
GENERAL
PRINCIPLES
OF
TAXATION IN THE PHILIPPINES
INCOME
General
principles
of
taxation in the Philippines
income
1.
2.
3.
4.
from
sources
Philippines.
within
the
5.
6.
SOME
RULES ON
VARIOUS TAXPAYERS
TAXATION
Who are
income?
on
taxed
OF
their
1.
Resident citizens
2.
Domestic corporations
THE
global
Non-resident citizen
2.
3.
Alien
individual,
whether
a
resident or not of the Philippines
4.
Foreign
corporation,
whether
engaged or not in trade or
business in the Philippines
Resident
citizens
and
non-resident
2.
3.
Domestic corporation
10
4.
2.
based
on
their
GUIDE QUESTIONS
TAXABLE INCOME
a payment of income;
2.
a gift; or
3.
a capital transaction.
DETERMINING
2.
3.
4.
Forgiveness of indebtedness
IN
1.
Considered as income
TAX ON INDIVIDUALS
Recovery of
written of
amounts
previously
How taxed?
An
individual
citizen,
both
resident and non-resident, and an
individual resident alien are
taxed similarly.
11
2.
Passive income
3.
4.
3.
4.
6.
7.
Exempt if investment is
held for more than five
years
b.
If
investment
is
preterminated,
interest
income
on
such
investment
shall
be
subject to the following
rates:
20% if
preterminated in less than 3
years
12
12% if
preterminated after 3 years to
less than 4 years
Exception:
The
sale
or
disposition
of
the
principal
residence of natural persons is
exempt from capital gains tax if
certain conditions are met.
5%
if
preterminated after 4 years to
less than 5 years
8.
b.
c.
2.
3.
Notice
to
the
Commissioner of Internal
Revenue shall be given
within thirty (30) days from
the date of sale or
disposition; and
5%
2.
Over P100,000
10%
13
4.
A consultant, president of a
domestic company or person
involved
with
product
development is subject to
Philippine income taxation. Any
remuneration received would
stem from her employment as
company president and thus,
negates her allegation that she is
just a sales agent who receives
commissions. While petitioner
tried to show that she stayed in
the country for less than 180
days, her remuneration in the
form of commissions is still
taxable in the Philippines since it
is borne by a permanent
establishment in the Philippines.
Non-resident alien
trade or business
engaged
in
1.
2.
2.
3.
by
14
occupying the same position as
these alien individuals shall be
subject to 15% tax.
15
computed in the same manner as
a corporation for purposes of
computing the distributive shares
of the partners.
2.
A ratio of forty percent (40%) of
income tax collection to total tax
revenues
3.
A VAT tax effort of four percent
(4%) of GNP
TAX ON CORPORATIONS
RATES OF INCOME TAX ON DOMESTIC
CORPORATIONS
4.
A 0.9 percent (0.9%) ratio of the
Consolidated Public Sector Financial
Position to GNP
Some definitions for this purpose
In General
35%
34%
33%
onwards 32%
The
President,
upon
the
recommendation of the Secretary
of Finance, may, effective 01
January 2000, allow corporations
the option to be taxed at fifteen
percent (15%) of gross income,
provided certain conditions are
satisfied.
Trading Concern
Cost of goods sold shall include the
invoice cost of the goods sold, plus
import duties, freight in transporting
the goods to the place where the goods
are actually sold, including insurance
while the goods are in transit.
Tax
rate
educational
hospitals
for
proprietary
institutions
and
Manufact
Cost of
shall inc
finished
used, d
overhead
other co
materials
16
other activity exceeds 50% of
their total gross income derived
from all sources.
5.
Philippine Amusement and
Gaming Corporation (PAGCOR)
1.
2.
Royalties 20%
3.
4.
A
proprietary
educational
institution is any private school
maintained and administered by
private individuals or groups with
an issued permit to operate from
the DECS, or CHED, or TESDA, as
the case may be.
GOCCs,
agencies
instrumentalities
or
5.
Security
System
(SSS)
3.
Philippine Health Insurance
Corporation (PHIC)
4.
Philippine
Sweepstakes Office (PCSO)
Charity
b.
Note: Any
income
of
nonresidents,
whether
individuals or corporations,
from
transactions
with
depository banks under
the expanded system is
exempt from income tax.
1.
Government
Service
Insurance System (GSIS)
Social
Exceptions:
GOCCs
and
instrumentalities not subject to
tax are the:
2.
a.
6.
Intercorporate
exempt
dividends
17
7.
Gross Income
Cost of goods sold
Cost of goods sold for a
trading or merchandising
concern
Cost of goods manufactured
and sold for a manufacturing
concern
Gross Income for taxpayers
engaged in sale of service
Section 27(A)
equivalent to gro
discounts and allow
shall include all bu
to produce the me
present location an
shall include the in
import duties, freig
the place where
including insurance
shall include all c
goods, such as raw
manufacturing over
other costs incurred
factory or warehous
gross receipts less s
returns, allowances
discounts.
18
Optional: 15% of Gross Income
Cost of services
RESIDENT
FOREIGN
International Carrier 2 % of
Gross Philippine Billings
2.
Any
income
of
nonresidents, whether individuals or
corporations, from transactions
with said offshore banking units
shall be exempt from income tax.
35%
34%
33%
onwards 32%
resident
1.
3.
Tax
on
Branch
Profits
Remittances 15% of total profits
applied
or
earmarked
for
19
remittance without deduction for
the tax component thereof
4.
5.
Gross
Philippine
Billings
international air carrier
freight
or
for
Gross
Philippine
Billings
international shipping
of the passage
documents.
1.
interests
2.
dividends
3.
rents
4.
royalties
5.
6.
salaries
7.
wages
8.
premiums
9.
annuities
10.
emoluments
11.
other
fixed
or
determinable
annual,
periodic or casual gains,
profits, income and capital
gains
In Marubeni v. Commissioner,
Marubeni-Japan invested directly
20
in AG & P Manila. Since Marubeni
has a branch in the Philippines,
AG & P withheld 15% as branch
profits remittance tax from the
cash dividends. SC held that the
dividends remitted were not
subject to the 15% branch profit
remittance tax as they were not
income earned by a Philippine
branch of Marubeni-Japan.
Marubeni
SCRA 500
v.
Commissioner,
Marubeni
Corporation
is
resident foreign corporation.
177
a
A
resident
foreign
corporation is one that is
incorporated under the laws of a
foreign country and is engaged in
trade
or
business
in
the
Philippines. Marubeni Corporation
is a foreign corporation duly
organized under the laws of
Japan and it is duly licensed to
engage
in
business
under
Philippine
laws.
Marubeni
Corporation maintains a branch
office to carry out its business in
the country.
21
remitted
the
dividends
Marubeni of Japan.
to
Income
derived
under
the
expanded
foreign
currency
deposit system
This refers to income
derived by a depositary bank
under the expanded foreign
currency deposit system from
foreign currency transactions
with local commercial banks
including branches of foreign
banks that may be authorized by
the Bangko Sentral ng Pilipinas to
transact business with foreign
currency deposit system units
and other depositary banks
under the expanded foreign
currency
deposit
system,
including interest income from
foreign currency loans granted by
such depositary banks under said
22
3.
4.
expanded
foreign
currency
deposit system to residents.
Taxation of certain
foreign corporations
1.
Non-resident
cinematographic
film owner, lessor or distributor
25% of gross income
2.
3.
a.
b.
Intercorporate dividends
Dividends received by a
resident foreign corporation from
a domestic corporation liable to
tax under the NIRC shall not be
subject to income tax.
TAX
ON
NON-RESIDENT
CORPORATION
FOREIGN
35%
34%
33%
32%
non-resident
23
Tax on certain incomes received by
a non-resident foreign corporation
1.
2.
Intercorporate dividends
A final withholding tax at
the rate of fifteen percent (15%)
is hereby imposed on the amount
of cash and/or property dividends
received
by
a
non-resident
foreign
corporation
from
a
domestic corporation, subject to
the condition that the country in
which the non-resident foreign
corporation is domiciled shall
allow a credit against the tax due
from the non-resident foreign
corporation taxes deemed to
have been paid in the Philippines
equivalent to thirty two percent
(32%) in the year 2000.
This is the so-called tax
sparing rule.
TAX ON
EARNINGS
b.
ACCUMULATED
3.
Capital gains from sale of shares
of stock not traded in the stock
exchange
a.
IMPROPERLY
The
improperly
accumulated
earnings tax shall apply to every
corporation formed or availed for
the purpose of avoiding the
income tax with respect to
shareholders or the shareholders
of any other corporation, by
permitting earnings and profits to
accumulate instead of being
divided or distributed.
Exceptions
to
improperly
accumulated earnings tax
The
improperly
accumulated
earnings tax shall not apply to:
1.
Publicly-held corporations
2.
Banks and other non-bank
financial intermediaries
24
3.
Insurance companies
Evidence of
income tax
purpose
to
2.
Income tax paid for the
taxable year.
avoid
Coverage
For
corporations
using
the
calendar basis, the accumulated
earnings tax shall not apply on
improperly accumulated income
as of 31 December 1997.
Labor,
agricultural
or
horticultural organization
not organized principally
for profit;
2.
3.
A
beneficiary
society,
order
or
association,
operating for the exclusive
benefit of the members
such
as
a
fraternal
organization
operating
under the lodge system, or
a mutual aid association or
a non-stock corporation
2.
Income
gross income;
3.
and
excluded
from
4.
Amount of net operating
loss carry-over deducted;
And reduced by the sum of:
1.
Dividends
actually
constructively paid; and
or
on
1.
tax
Computation
of
improperly
accumulated taxable income
from
25
organized by employees
providing for the payment
of life, sickness, accident,
or
other
benefits
exclusively
to
the
members of such society,
order, or association, or
non-stock corporation or
their dependents;
4.
5.
Non-stock corporation or
association organized and
operated exclusively for
religious,
charitable,
scientific,
athletic,
or
cultural purposes, or for
the
rehabilitation
of
veterans, no part of its net
income or asset shall
belong to or inure to the
benefit of any member,
organizers, officer or any
specific person;
6.
7.
Civic
league
or
organization not organized
for profit but operated
exclusively
for
the
promotion
of
social
welfare;
8.
A non-stock, non-profit
educational institution;
9.
Government
institution;
educational
10.
11.
26
their properties,
personal
2.
real
or
GROSS INCOME
Gross income
1.
2.
3.
Gains
derived
dealings in property;
4.
Interests;
5.
Rents;
6.
Royalties;
7.
Dividends;
8.
Annuities;
9.
10.
Pensions; and
11.
from
the
27
general
partnership.
professional
the
health,
goodwill,
contentment, or efficiency of his
employees.
[Section
2.78.1,
Revenue Regulations 2-98]
of
28
2.
Fringe benefit
Housing;
2.
Expense account;
3.
4.
5.
6.
7.
Expenses
travel;
8.
Holiday
and
expenses;
9.
Educational assistance to
the
employee
or
his
dependents; and
10.
Fringe benefits
subject to FBT
for
which
foreign
vacation
are
not
29
1.
2.
3.
Fringe
benefits
which
are
authorized and exempted from
tax under special laws.
Contributions of the employer for
the benefit of the employee to
retirement,
insurance
and
hospitalization benefit plans.
Benefits given to the rank and
file employees, whether granted
under a collective bargaining
agreement or not.
De minimis benefits.
5.
De minimis benefits
INTEREST INCOME
1.
2.
3.
4.
interest
on
foreign
bonds/government bonds
5.
6.
7.
interest income
operators
or
TRADE OR BUSINESS
4.
6.
of
pawnshop
30
[Department of Finance Order
149-95]
RENTALS
Operating lease
1.
Cash dividend
2.
3.
Property dividend
4.
Liquidating dividend
Finance lease
DIVIDEND INCOME
Dividends
Dividends
means
any
distribution
made
by
a
corporation to its shareholders
out of its earnings on profits and
payable to its shareholders,
Stock dividend
When
redemption
of
stock
dividends by a corporation is
essentially
equivalent
to
a
distribution of taxable dividends
(CIR v. CA, et. al. , G.R. No. 108576
dated 1/20/99)
31
EXCLUSION
Dividends paid in property
Exclusion
2.
3.
4.
Compensation
sickness
5.
6.
Retirement benefits,
gratuities, etc.
7.
Income
derived
government
8.
9.
10.
11.
Liquidating dividend
Disguised dividends
In
the
case
of
excessive
payments by corporations, if
such payments correspond or
bear a close relationship to
stockholdings, and are found to
be a distribution of earnings or
profits, the excessive payments
will be treated as dividends.
[Section 71, Revenue Regulation
2]
Exclusion
refers
to
income
received or earned but is not
taxable as income because it is
exempted by law or by treaty.
Such tax-free income is not to be
included in the income tax return
unless information regarding it is
specifically called for.
for
injuries
or
pensions,
by
foreign
and other
exceeding
32
12.
13.
14.
Retirement
benefits,
gratuities, etc.
6.
Requisites
for
exclusion
retirement benefits
of
pensions,
1.
2.
3.
2.
Amount received by an
official or employee or by
his
heirs
from
the
employer
due
to
separation
from
the
service because of death,
sickness or other physical
disability or for any cause
beyond the control of the
official or employee
3.
4.
Payment of benefits to a
resident person under the
United States Veterans
Administration
5.
Separation
pay
and
amounts
received
due
to
involuntary
separation
33
heirs from the employer due to
death, sickness or other physical
disability or for any cause beyond
the control of the said official or
employee is excluded from gross
income.
Cause beyond the control of the
employee
Income derived
government
by
foreign
foreign governments;
2.
financing
institutions
owned,
controlled,
or
enjoying refinancing from
foreign governments; and
3.
international or regional
financial
institutions
established
by
foreign
governments.
Income
by
government
the
Philippine
1.
2.
2.
The
recipient
was
selected
without any action on his part to
enter the contest or proceeding.
3.
Prizes
and
competitions
awards
in
sports
1.
2.
Sports
competition
or
tournament held either in the
Philippines or abroad.
34
3.
Sports
competition
or
tournament must be sanctioned
by
their
natural
sports
associations.
1.
The
taxpayer
seeking
a
deduction must point to some
specific provisions of the statute
authorizing the deduction; and
2.
DEDUCTIONS
IN GENERAL
Kinds of deductions
Deductions
1.
2.
Optional
standard
deduction
which is available to individual
taxpayers only, except a nonresident alien
3.
Deduction v. exemption
Time
within
deduction
Basic
principles
deductions
governing
to
claim
1.
2.
3.
Deduction v. exclusion
which
35
1.
2.
3.
aliens
purely
Expenses
2.
Interest
3.
Taxes
4.
Losses
5.
Bad debts
6.
Depreciation
7.
8.
Charitable
contributions
and
other
9.
10.
Pension trusts
11.
Itemized deductions
2.
AND
NECESSARY
expense
v.
BUSINESS
capital
36
trade, business or the exercise of
a profession.
Capital
expenses
are
expenditures for extraordinary
repairs which are capitalized and
subject to depreciation. These
are expenses which tend to
increase the value or prolong the
life of the taxpayers property.
6.
Substantiation
requirement
business expense
for
2.
What are
expenses?
2.
4.
5.
It must be substantiated by
sufficient evidence such as
official receipts and other official
records.
included
in
business
2.
3.
Rentals
and/or
other
payments of property to
which the taxpayer has not
taken or is not taking title
or in which he has no
equity other than that of a
lessee, user or possessor.
of
1.
3.
1.
37
4.
Entertainment,
amusement and recreation
expenses.
of
1.
2.
Treatment
compensation
of
excessive
In
the
case
of
excessive
payments by corporations, if
such payments correspond or
bear a close relationship to
stockholdings, and are found to
be distribution of earnings or
profits, the excessive payments
will be treated as dividends.
[Section 71, Revenue Regulations
2]
Pensions
injuries
2.
3.
and
compensation
for
Rules on repairs
Expenses
for
repairs
are
deductible if such repairs are
incidental or ordinary, that is,
made to keep the property used
in the trade or business of the
taxpayer in an ordinarily efficient
operating condition.
Repairs
in
the
nature
of
replacement to the extent that
they arrest deterioration and
prolong the life of the property
are capital expenditures and
should be debited against the
corresponding
allowance
for
depreciation.
[Section
68,
Revenue Regulations 2]
of
1.
Travel expenses
Travel
expenses
include
transportation
expenses
and
38
meals
and
lodging
of
an
employee paid for by the
employer. [Section 66, Revenue
Regulations 2]
Requisites for
travel expenses
deductibility
of
1.
The
expenses
must
reasonable and necessary.
2.
3.
be
Tax home
the
amount
of
tax
deductible by the latter.
being
Required as a condition
continued use or possession
for
2.
3.
trade,
Rental expense
Entertainment, amusement
recreation expense
and
1.
Reasonable in amount
2.
Incurred
period
3.
Directly
connected
to
the
development, management, and
operation of the trade, business,
or profession of the taxpayer, or
that are directly related to or in
furtherance of the conduct of his
or
its
trade,
business
or
profession
4.
5.
Any
expense
incurred
entertainment, amusement
recreation which is contrary
law, morals, public policy,
public order shall in no case
allowed as a deduction
during
the
taxable
for
or
to
or
be
39
Option
to
institutions
private
educational
Interest
2.
To deduct expenditures
otherwise considered as
capital
outlays
of
depreciable
assets
incurred during the taxable
year for the expansion of
school facilities; or
Back-to-back interest
Advertising expense
Not deductible business
expense. Efforts to establish
reputation are akin to acquisition
of capital assets and, therefore,
expenses related thereto are not
business expense but capital
expenditures.
2.
Promotional expenses
Same as advertising expense
3.
The
taxpayers
allowable
deduction for interest expense
shall be reduced by an amount
equal to 38% by 01 January 2000
of the interest income earned by
him which has been subjected to
a final tax.
2.
Interest
taxpayers.
3.
Litigation expenses
Litigation expenses that
are incurred in the defense or
protection of title are capital in
nature and not deductible.
between
related
of
1.
2.
3.
40
Optional
expense
treatment
of
Delinquency
interest
payment deductible
interest
on
2.
3.
4.
tax
TAXES
What taxes are deductible?
Tax subsequently
credited
refunded
or
Tax credit
41
paid to a foreign country subject
to limitations.
Limitations on credit
1.
2.
Proof of credits
The
total
amount
of
income
from
sources
without the Philippines;
2.
3.
All
other
necessary
verification
computation
credits.
information
for
the
and
of
such
LOSSES
Losses
42
2.
3.
4.
5.
Securities
become
worthless
during the taxable year
2.
3.
1.
2.
Casualty losses
3.
Capital losses
4.
5.
6.
Wagering losses
7.
Abandonment losses
for
capital
loss
carry-over
Casualty loss
Loss limitation
losses
Net
operating
(NOLCO)
43
1.
2.
BAD DEBTS
Bad Debts
Wash sale
1.
There must be
subsisting debt.
2.
3.
4.
Wagering losses
Abandonment losses
valid
and
44
debt is indeed uncollectible even
in the future.
Requisites for
depreciation
deductibility
of
1.
2.
3.
4.
DEPRECIATION
Depreciation
to
of
of
is
45
owner of the property and shall
be allowed to the life tenant.
depreciation
rate
for
any
depreciable asset and claimed
the depreciation expenses as
deduction from his gross income
without any written objection on
the part of the Commissioner or
his
duly
authorized
representative,
the
aforesaid
useful life and depreciation rate
so adopted by the taxpayer shall
be considered binding.
Certain methods
depreciation
in
In computing a depreciation
allowance in the case of a patent
or copyright, the capital sum to
be replaced is the cost or other
basis of the patent or copyright.
The
allowance
should
be
computed by an apportionment
of the cost or other basis of the
patent or copyright over the life
of the patent or copyright since
its grant, or since its acquisition
by the taxpayer, or since March
1, 1913, as the case may be.
computing
1.
2.
3.
Sum-of-the-year-digit method.
4.
MINES
Determination
depletion cost
of
amount
of
46
2.
the
estimated
total
recoverable units in the
property; and
3.
the
number
of
units
recovered
during
the
taxable year in question.
[Consolidated Mines v.
CTA, 58 SCRA 618]
Intangible
operations
cost
in
petroleum
1.
2.
Requisite
for
deductibility
charitable contributions
3.
It must be made
taxable year.
4.
5.
It
must
be
evidenced
adequate records or receipts.
Depletion v. depreciation
of
within
the
by
47
Philippines or in pursuance of
special laws.
3.
Utilization
1.
2.
Non-government organization
2.
3.
Administrative
expense
shall, in no case, exceed
thirty percent (30%) of the
total expenses.
4.
Utilization means:
Proof of deductions
Contributions or gifts
shall be allowable as deductions
only if verified under the rules
and regulations prescribed by the
Secretary of Finance.
48
development expenditures
deferred expenses:
as
3.
It must be
employer.
4.
5.
6.
2.
3.
Chargeable
to
capital
account
but
not
chargeable to property of a
character which is subject
to
depreciation
or
depletion.
Research
expenses
apply to:
and
development
deductions shall not
1.
Any
expenditure
for
the
acquisition or improvement of
land, or for the improvement of
property to be used in connection
with research and development
of a character which is subject to
depreciation or depletion.
2.
PENSION TRUSTS
Requisites for deductibility
payments to pension trusts
of
1.
The
employer
must
have
established
a
pension
or
retirement plan to provide for the
payment of reasonable pensions
to his employees.
2.
ADDITIONAL
funded
by
REQUIREMENT
DEDUCTIBILITY OF CERTAIN PAYMENTS
the
FOR
Additional
requirement
for
deductibility of certain payments
49
limitations, consider the following
factors:
2.
Additional exception
1.
3.
2.
Adequacy
of
the
prescribed limits on the
actual
expenditure
requirements
of
each
particular industry; and
Effects of inflation
expenditure levels.
on
Personal exemptions
DEDUCTIONS
ALLOWED
INDIVIDUAL TAXPAYERS
ONLY
TO
Deductions
allowed
individual taxpayers
only
to
1.
Personal exemption
Who
are
exceptions?
allowed
personal
1.
Citizens
2.
Resident aliens
3.
4.
P20,000
single
person or a
married
person
judicially
decreed
as
legally
separated
from his or
her
spouse
with
no
qualified
dependents
50
P25,000
family
head
P32,000
person
married
of
To be a head of a family,
one
or
more
legitimate,
recognized natural, or legally
adopted children must live with
and depend on an unmarried or
legally separated man or woman.
Living with
Family
2.
3.
Additional exemption
51
Non-resident
alien
individual
engaged in trade or business
Entitled
only
exemption
Dependent
to
personal
1.
2.
3.
4.
5.
Change of status
Taxpayer
marries
or
additional dependents
have
to
non-
Personal,
expenses
2.
Capital expenditures
a.
living
or
family
52
b.
3.
4.
Losses
between
taxpayers.
5.
6.
Illegal
expense
i.e.
bribes,
kickbacks, and other similar
payments [Section 34(A)(1)(c),
NIRC]
5.
6.
In
case
of
a
corporation,
expenses for organization, such
as incorporation fees, attorneys
fees and accountants charges
are
ordinarily
capital
expenditures, but where such
expenditures are limited to
purely incidental expenses, a
taxpayer may charge such items
against income in the year in
which they are incurred. [Section
120, Revenue Regulations 2]
related
Capital expenditures
1.
2.
Any
amount
expended
in
restoring property or in making
good the exhaustion thereof for
which an allowance is or has
been made
3.
4.
The
amount
expended
for
architects services is part of the
cost of the building
Exceptions
1.
Contribution
of
the
employer for the benefit of
the employee pursuant to
the provisions of existing
law, i.e. SSS, GSIS, among
others.
2.
Related taxpayers
1.
53
brothers and sisters,
ancestors
and
descendants)
2.
3.
spouse,
lineal
4.
5.
6.
2.
3.
4.
Capital asset
1.
Payment
deductible.
of
interest
is
3.
Losses from sales or exchanges
of property are not deductible.
not
2.
54
Three rules on the recognition of
capital gains and losses
1.
Holding rule
2.
3.
50%
Exceptions
1.
Exchange
of
property
where
the
property
received
is
not
substantially different from
the property disposed of.
[Section 140, Reg. No. 2]
b.
Exchange
of
property
solely in kind in pursuance
of corporate mergers and
consolidations.
c.
Exchange by a person of
his property for stocks in a
corporation as a result of
which said person, alone
or together with others not
exceeding four persons,
gains
control
of
said
corporation.
and
55
2.
Transactions
where
gain
recognized but not the loss
services
is
involved,
the
applicable source rule may be
simply stated as follows: The
income is sourced in the place
where the service contracted for
is rendered.
is
a.
Transactions
between
related taxpayers
b.
Illegal transactions
Sources of taxation
c.
1.
2.
3.
Merger or consolidation
Interests
derived
from
sources
within
the
Philippines, and interests
on bonds, notes or other
interest-bearing
obligations of residents,
corporate or otherwise.
2.
3.
SOURCES OF TAXATION
Source of income
in
56
performed
Philippines.
4.
in
the
5.
6.
Interest income
Purchase
property
sale
of
personal
2.
The
Commissioner has
certified that the taxes, if
any, imposed and due on
the gain realized from such
sale or transfer have been
paid. [Section 42(E), NIRC]
or
57
Methods of accounting
2.
2.
3.
a.
4.
5.
6.
b.
If no such method of
accounting has been so
employed; or
If the method employed
does not clearly reflect the
income. [Section 43, NIRC]
Taxable year
3.
Methods of accounting
1.
Accounting periods
1.
2.
When
calendar
January 1 to
year
used?
1.
If the taxpayer
calendar year
chooses
the
2.
Cash Basis
Accrual Method
Income, gains and profits
are included in the gross income
when earned, whether received
or not.
58
Expenses are allowed as
deductions
when
incurred,
although not yet paid.
3.
Mixed/Hybrid
Cash
v.
accrual
accounting
method
of
Tax
accounting
accounting
v.
1.
2.
financial
Long-term contracts
Sales of
property
in
personal
These include:
1.
dealers
59
property included in the
inventory at the close of
the taxable year) for a
price exceeding P1000;
and
2.
2.
Allocation
deductions
Initial payments
Termination of leasehold
income
and
2.
60
income from sources within the
Philippines
3.
4.
to
file
3.
4.
Where to file
1.
2.
3.
Collection agent
4.
5.
When to file
2.
However, an individual
deriving
compensation
concurrently from two or more
employees at any time during the
taxable year shall file an income
tax return.
Further,
an
individual
whose
pure
compensation
income derived from sources
within the Philippines exceeds
P60,000 shall also file an income
tax return.
Married
individuals,
whether
citizens, resident or non-resident
61
aliens, who do not derive income
purely from compensation, shall
file a return for the taxable year
to include the income of both
spouses.
not
required
to
render
a
declaration of estimate income
tax.
Self-employment income
Estimated tax
1.
When the donors tax has
been paid on such property; or
2.
When the transfer of such
property is exempt from donors
tax.
SELF-EMPLOYED INDIVIDUALS
Declaration
individuals
of
income
tax
for
Every
individual
subject
to
income tax, who is receiving selfemployment income, whether it
constitutes the sole source of his
income or in combination with
salaries, wages and other fixed or
determinable income, shall make
and file a declaration of his
estimated income for the current
taxable year on or before April 15
of the same taxable year.
Non-resident Filipino citizens with
respect to income from without
the Philippines and non-resident
aliens not engaged in trade or
business in the Philippines are
CORPORATE RETURNS
Corporation returns
Quarterly
return; and
income
tax
62
2.
2.
Carry over
credit; or
3.
Be credited or refunded
with the excess amount
paid, as the case may be.
the
excess
Carrying-over
or
crediting
excess to succeeding quarters
of
1.
63
Installment payment
A
taxpayer, other
than
a
corporation, may opt to pay the
tax in two equal installments
when the tax due is in excess of
two thousand pesos (P2,000).
In
such
cases,
the
first
installment shall be paid at the
time the return is filed and the
second installment on or before
July 15 following the close of the
calendar year.
However,
the
amount so shown on the
return shall be increased
by the amount previously
assessed
(or
collected
without assessment) as a
deficiency, and decreased
by the amount previously
abated, credited, returned
or otherwise repaid in
respect of such tax; or
2.
Assessment
and
deficiency tax
payment
Deficiency
However,
such
amounts
previously
assessed
or
collected
without assessment shall
first be decreased by the
amounts
previously
abated, credited, returned
or otherwise repaid in
respect of such tax.
of
If no amount is shown as
the tax by the taxpayer
upon his return, or if no
return is made by the
taxpayer, then the amount
by which the tax exceeds
the amounts previously
assessed
(or
collected
without assessment) as a
deficiency.
of
final
tax
on
2.
Withholding of creditable tax at
source
Fund withheld held in trust by
withholding agent
64
Income
tax
imposed
upon
individuals shall also apply to the
income of estates or of any kind
of property held in trust.
2.
3.
4.
2.
If
under
the
trust
instrument,
it
is
impossible, at any time
prior to the satisfaction of
all liabilities with respect to
employees under the trust,
for any part of the corpus
or income to be used for or
diverted to purposes other
than for the exclusive
benefit of the employees.
65
Fiduciaries
indemnified
claims for taxes paid
against
Trustees,
executors,
administrators
and
other
fiduciaries
are
indemnified
against the claims or demands of
every
beneficiary
for
all
payments of taxes which they
shall be required to make under
the provisions of this Title, and
they shall have credit for the
amount
of
such
payments
against
the
beneficiary
or
principal in any accounting which
they make as such trustees or
other fiduciaries.