IV.

Gross Income
A. Gross Income Defined, Sec. 32 (A), NIRC

SEC. 32. Gross Income. -

(A) General Definition. - Except when otherwise provided in this Title, gross income means all
income derived from whatever source, including (but not limited to) the following items:
(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries,
wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general professional partnership.

"Gross income" means income, gain, or profit subject to income tax. It includes compensation
for personal services, business income, profits, and income derived from any source whatever
(whether legal or illegal), unless it is exempt from income tax by law or it is subject to final
withholding income tax in accordance with the semi-global or semi-schedular tax system
adopted by the Philippines.

“Income derived from whatever source” refers to 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.
(GUTIERREZ V. CIR, CTA CASE NO. 65, AUGUST 31, 1965)

“But not limited to” means that the enumeration provided in Section 32(A) is not exclusive.
Section 32(A) does not intend the enumeration to be exclusive. It merely directs that the types
of income listed therein be treated as income from sources within the Philippines (CIR VS.
AMERICAN AIRLINES [DECEMBER 19, 1989]).

Gains, money or otherwise derived from all other illegal source fall within the ambit of “income
derived from whatever source” and is subject to income tax.

B. Gross Income v. Net Income v. Taxable Income, Sec. 31, NIRC

Distinction Between Gross Income v. Net Income v. Taxable Income

Gross Income All income minus exclusions. (In other words, all income subject to
income tax)
Taxable Income All pertinent items of gross income less deductions and/or personal and
additional exemptions, if any, authorized for such types of income by the
NIRC or other special laws (Sec. 31, NIRC)
Net Income This is gross income less the allowable deductions.

Determination of the net income tax payable

In all cases, other than when a final tax is imposed or when the gross compensation income tax
system applies, the income tax is imposed on the net taxable income computed as follows:

Individual Corporation
All Income All income
- Exclusions - Exclusions
---------------------- ----------------------
= Gross Income = Gross Income
- Deductions - Deductions
---------------------- ----------------------
 = Net Income = Taxable net income
- Personal and Additional Exemptions x Tax Rate
---------------------- ----------------------
= Taxable net income = Tax Due
x Tax Rate
----------------------
= Tax Due

Inapplicability of Computation:
1. If the income is subject to final tax
The law already provides for a “final” tax. The taxpayer only needs to pay it, with no deductions,
nor exclusions.

2. When the gross compensation income tax system applies

Applies in the case of a non-resident alien not engaged in trade and business in the Philippines,
he just has to pay a tax equal to 25% of such gross income, with no deductions, nor exclusions.

C. Sources of Income Subject to Tax - RMC 50-2018

1. Compensation income

In general, the term "compensation" means all remuneration for services performed by an
employee for his employer under an employer-employee relationship, unless specifically
excluded by the Tax Code or special law.

Under R.A. No. 9504, statutory minimum wage received on or after July 6, 2008 is exempt from
income tax.

Compensation includes the cash value of all remuneration paid in any medium other than cash.
(Sec. 78, NIRC, Sec. 2.78.3, RR No. 2-98). Compensation may be paid in money, or in some
medium like stocks, bonds, or other forms of property.

Sec. 32(A) (1), NIRC

Compensation for services includes payments “in whatever form paid including but not limited
to:
1. Fees
2. Salaries
3. Wages
4. Commissions; and
5. Similar items

Sec. 78 (A), NIRC

Items not included in compensation income:
1. For agricultural labor paid entirely in products of the farm where the labor is performed
2. For domestic service in a private home
3. For casual labor not in the course of the employer’s trade or business
4. For services by a citizen or resident of the Philippines for a foreign government or an
international organization.

Sec. 2.78.1 (A), RR 2-98, as amended

The term “compensation” means all remuneration for services performed by an employee for his
employer under an employer-employee relationship, unless specifically excluded by the Code.
Thus, fees including director’s fees, if the director is, at the same time, an employee of the
employer/corporation constitute compensation income (Section 2.78.1, RR No. 2-98).

Even if the compensation is paid after separation, it will still form part of compensation income.
Remuneration for services constitutes compensation even if the employer-employee
relationship no longer exists at the time when payment is made between the person in whose
employ the services had been performed and the individual who performed them (see Section
2.78.1(A) RR No. 2-98]

Sec. 2(a) to (e), RR 8-2018

SECTION 2. DEFINITION OF TERMS. - Words and/or phrases used under these regulations
shall mean:
a. Compensation Income - in general, means all remuneration for services performed by an
employee for his employer under an employer-employee relationship, unless specifically
excluded by the Code.
The name by which the remuneration for services is designated is immaterial. Thus, salaries,
wages, emoluments and honoraria, allowances, commissions (e.g. transportation,
representation, entertainment and the like); fees including director's fees, if the director is, at the
same time, an employee of the employer-corporation; taxable bonuses and fringe benefits,
except those which are subject to the fringe benefits tax under Sec. 33 of the Code and the
allowable "de minimis" benefits; taxable pensions and retirement pay; and other income of a
similar nature constitute compensation iucome.

b. Compensation Income Earners - individuals whose source of income is purely derived from
an employer-employee relationship'

c. Employee - an individual performing services under an employer-employee

relationship. The term covers all employees, including officers and employees, whether elected
or appointed, of the Government of the Philippines, or any political subdivision thereof or any
agency or instlumentality.

d. Employer - any person for whom an individual performs or perlormed any service, whatever
nature. under an employer-employee relationship. It is not necessary that services be continuing
at the time the wages are paid in order that the status employer may exist. Thus, for purposes of
withholding, a person for whom an individual has performed past services and from whom he is
still receiving compensation is an "employer".

e. Employer and Employee Relationship - exists when a person for whom services were
performed (employer) has the right to control and direct an individual who performs the services
(employee), not only as to the result of the work to be accomplished but also as to the details,
methods and means by which it is accomplished. An employee is subject to the control of the
employer not only as to what shall be done, but how it shall be done. It is not necessary that the
employer actualiy exercises the right to direct or
control the manner in which the services are performed. It is sufficient that there exists a right to
control the manner of doing the work.

RMC No. 034-08

Short version:

Under section 79, in relation to Section 24(A), both of the NIRC, as amended, director’s fees are
subject to the withholding tax on wages. The said tax treatment applies whenever it is
established that the director and the corporation has an employer-employee relationship.

XPN: Director who is not an employee of the corporation - falls under Section 32(A)(2) of the
Tax Code under the caption “Gross income derived from the conduct of trade or business or
exercise of a profession.”

***
Under section 79, in relation to Section 24(A), both of the National Internal Revenue Code (Tax
Code), as amended, director’s fees are subject to the withholding tax on wages. The said tax
treatment applies whenever it is established that the director and the corporation has an
employer-employee relationship (i.e President of a corporation sitting as a member of the Board
of Directors). Revenue Regulations (RR) No. 2-98 provides that “the term “compensation”
means all remuneration for services performed by an employee for his employer under an
employer-employee relationship, unless specifically excluded by the Code. Thus, fees including
director’s fees, if the director is, at the same time, an employee of the employer/corporation
constitute compensation income (Section 2.78.1, RR No. 2-98). Accordingly, the director’s fees
received by employees are exempt from the Value -Added Tax (VAT) under Section 109 of the
Tax Code.

However, if these fees are paid to a director who is not an employee of the corporation paying
such fees (i.e. whose duties are confined to the attendance of and participation in the meetings
of the board of directors), such fees are not treated as compensation income because of the
absence of employer-employee relationship, but rather, the same should squarely fall under
Section 32(A)(2) of the Tax Code under the caption “Gross income derived from the conduct of
trade or business or exercise of a profession.” The fees received by the director who is not an
employee of the payor/ corporation are subject to ten percent (10%) creditable withholding tax if
his gross income for the current year do not exceed P 720,000.00 or fifteen percent (15%) if his
gross income exceeds P 720,000.00 pursuant to RR No. 30-2003. These payments fall under
“Professional Fees, talent fees, etc., for services rendered by individuals” which include under
its purview “Fees of directors who are not employees of the company paying such fees, whose
duties are confined to attendance at and participation in meetings of the board of directors.”
(Section 2.57.2(A)(9), RR No. 2-98). It is also emphasized that the amount subject to the 10% or
15% creditable withholding tax is not only confined to fees, but also per diems, allowances and
any other form of income payment made to the director.

Aside from being liable to the payment of the Income Tax imposed under Title II of the Tax
Code, these directors who are not employees, having received fees which had been
subsequently reported in their annual Income Tax Returns as part of their gross income should
likewise be liable to pay business tax on account of such receipt of income. They fall under the
category of sellers of services under Title IV of the Tax Code who are liable to pay the 12% VAT
on their gross receipts pursuant to Section 108 thereof, or to the three percent (3%) Percentage
Tax imposed under Section 116, should they fail to meet the VAT threshold.

Backwages - BIR Ruling No. DA-073-2008

The employers are mandated to withhold taxes on wages and this includes those backwages,
allowances, and benefits awarded in a labor dispute.

Backwages, allowances, and benefits awarded in a labor dispute constitute remunerations for
services that would have been performed by the employee in the year when actually received,
or during the period of his dismissal from the service which was subsequently ruled to be illegal.
The said back wages, allowances and benefits are subject to withholding tax on wages. (see
RMC 39-2012 [August 3, 2012])

XPN:
Garnishees (persons owning/in possession of debts due to the employer) of a judgment award
in a labor dispute are constituted as withholding agents with the duty of deducting the
corresponding withholding tax on wages due thereon in an amount equivalent to five percent
(5%) of the portion of the judgment award representing the taxable backwages, allowances and
benefits

Convenience of the Employer Rule

Generally, the value to the employee of living quarters and meals furnished in addition to salary
constitutes income subject to tax.

However, where the quarters and meals are furnished for the convenience of the employer, the
ratable value of the same need not be added to the salary or cash compensation of the
employee for income tax purposes (Henderson vs. Collector, 1 SCRA 649, June 28, 1957).
Note: The value of the meals is not taxable to the employee, if the meals are provided by the
employer for a substantial non-compensatory business purpose (generally when employee is
required to be on duty during the meal period). Lodging is excluded only if the employee must
accept the lodging on the employer's business premises as a condition of his employment.

Collector v. Henderson, 1 SCRA 649

 Rental allowances and travel allowances by a company are not part of taxable
income.

FACTS:
Sps. Arthur Henderson and Marie Henderson filed their annual income tax with the BIR.
Arthur is president of American International Underwriters for the Philippines, Inc., which is a
domestic corporation engaged in the business of general non-life insurance, and represents a
group of American insurance companies engaged in the business of general non-life
insurance.

The BIR demanded payment for alleged deficiency taxes. In their computation, the BIR
included as part of taxable income: 1) Arthur’s allowances for rental, residential expenses,
subsistence, water, electricity and telephone expenses 2) entrance fee to the Marikina Gun
and Country Club which was paid by his employer for his account and 3) travelling allowance
of his wife

The taxpayers justifications are as follows:

1) as to allowances for rental and utilities, Arthur did not receive money for the allowances.
Instead, the apartment is furnished and paid for by his employer-corporation (the mother
company of American International), for the employer corporation’s purposes. The spouses
had no choice but to live in the expensive apartment, since the company used it to entertain
guests, to accommodate officials, and to entertain customers. According to taxpayers, only P
4,800 per year is the reasonable amount that the spouses would be spending on rental if they
were not required to live in those apartments. Thus, it is the amount they deem is subject to
tax. The excess is to be treated as expense of the company.

2) The entrance fee should not be considered income since it is an expense of his employer,
and membership therein is merely incidental to his duties of increasing and sustaining the
business of his employer.

3) His wife merely accompanied him to New York on a business trip as his secretary, and at
the employer-corporation’s request, for the wife to look at details of the plans of a building that
his employer intended to construct. Such must not be considered taxable income.

The Collector of Internal Revenue merely allowed the entrance fee as nontaxable. The rent
expense and travel expenses were still held to be taxable. The Court of Tax Appeals ruled in
favor of the taxpayers, that such expenses must not be considered part of taxable income.
Letters of the wife while in New York concerning the proposed building were presented as
evidence.

ISSUE: Whether or not the rental and travel allowances given by the employer-
corporation are part of taxable income?

RULING: NO.

Generally, living allowances should be treated as income of the recipient. However, if any
amount thereof is paid directly by the employer and paid for the convenience of the latter, the
excess of what the recipient employee would have ordinarily incurred for his own subsistence
is not taxable income but a business expense of the employer. This exemplifies the
employer’s convenience rule (see COLLECTOR VS. HENDERSON [1 SCRA 649])

In this case, no part of the allowances in question redounded to their personal benefit, nor
were such amounts retained by them. These bills were paid directly by the employer-
corporation to the creditors. The rental expenses and subsistence allowances are to be
considered not subject to income tax. Arthur’s high executive position and social standing,
demanded and compelled the couple to live in a more spacious and expensive quarters. Such
‘subsistence allowance’ was a SEPARATE account from the account for salaries and wages
of employees. The company did not charge rentals as deductible from the salaries of the
employees. These expenses are COMPANY EXPENSES, not income by employees which
are subject to tax.
 i. Fringe Benefits
Definition - Sec. 33 (B), NIRC

As defined by Section 33(B), the term “fringe benefit” means any good, service or other benefit
furnished or granted in cash or in kind by an employer to an individual employee (except rank
and file employees as defined herein) such as, but not limited to, the following:
1. Housing;
2. Expense account;
3. Vehicle of any kind;
4. Household personnel, such as maid, driver and others;
5. Interest on loan at less than market rate to the extent of the difference between the market
rate and actual rate granted;
6. Membership fees, dues and other expenses borne by the employer for the employee in social
and athletic clubs or other similar organizations;
7. Expenses for foreign travel;
8. Holiday and vacation expenses;
9. Educational assistance to the employee or his dependents; and
10. Life or health insurance and other non-life insurance premiums or similar amounts in excess
of what the law allows.

Tax base - Sec. 2.79 (D) (1) (2), Revenue Regs. 2-98, as amended

(D) Computation of Withholding Tax on Fringe Benefit

(I)Final withholding tax on Fringe Benefits paid to employees other than rank and file. -
There shall be imposed a final tax of 34% beginning January 1, 1998; 33% beginning January 1,
1999, and 32% beginning January 1, 2000 and thereafter, on the grossed-up monetary value of
fringe benefits pursuant to Sec. 33 of the Code and its implementing regulations, granted or
furnished by the employer to his employees(except rank and file employees) unless the fringe
benefit is required by the nature of or necessary to the trade, business or profession of the
employer, and when the fringe benefit is for the convenience and advantage of the employer.
The fringe benefit tax shall be paid by the employer in the same manner as provided in Sec.2.58
of these Regulations. It shall not form part of the gross income of the employee. The imposition
of the fringe benefits tax should be the subject of a separate set of rules and regulations which
shall be issued for the purpose.

(2) Grossed-up monetary value of Fringe Benefit

(a)In general, the grossed-up monetary value of the fringe benefit shall be determined by
dividing the monetary value of the fringe benefit by 66% in 1998; 67% in 1999; and 68% in
2000 and thereafter.

(b)The grossed-up monetary value of fringe benefits furnished to employees and which are
taxable under subsections B, C, D. and E of Section 25 of the Code shall be determined by
dividing the monetary value of the fringe benefit by the difference between 100% and the
applicable rates of income tax prescribed on the aforesaid sub-sections of Section25.to wit:

Subsection (B) - 25% on income derived from sources within the Philippines by a non-
resident alien individual not engaged in trade or business in the Philippines.

Subsection (C) - 15% on income of an alien individual employed by regional or area

headquarters of a multinational company or regional operating headquarters of a
multinational company, including any of its Filipino employees employed and occupying
the same position as those of its aforesaid alien employees.

Subsectio (D) -15% on income of an alien individual employed by an offshore banking

unit of a foreign bank established in the Philippines, including any of its Filipino
 employees employed and occupying the same position as those of its aforesaid alien
employees.

Subsection (E) - lS% on the income of an alien individual employed by a foreign service
subcontractor engaged in petroleum operations in the Philippines, including any of its
Filipino employees employed and occupying the same position as those of its aforesaid
alien employees.

ii. Exceptions - Sec. 33 (C), NIRC; Sec. 2.79 (D) (3), RR 2-98, as amended
Exempt under special laws
Retirement insurance and hospitalization benefit plans
Benefits to rank and file employees - Sec. 2(m), RR 8-2018

SEC. 33. Special Treatment of Fringe Benefit. -

(C) Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under this
Section:
(1) Fringe benefits which are authorized and exempted from tax under special laws;
(2) Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans;
(3) Benefits given to the rank and file employees, whether granted under a collective bargaining
agreement or not; and
(4) De minimis benefits as defined in the rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner.

Sec. 2.79 (D) (3), RR 2-98, as amended

3) Non-taxable Fringe Benefits. - The following fringe benefits are not subject to the fringe
benefits tax.
(a) Fringe benefits paid to rank and file employees.-Fringe benefits furnished or granted to rank
and file employees shall form part of the employee’s gross compensation income subject to the
withholding tax table on compensation under Section 2.79(B) of these Regulations.
(b) Fringe benefits which are authorized and exempted from income tax and consequently from
withholding tax under the Code, as amended, or under any special law.
(c) Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans.
(d) De minimis benefits. For purposes of determining whether the fringe benefit shall be
considered payments of de minimis benefits, the employer shall submit a written representation
to the Commissioner for the issuance of a ruling taking into account the peculiar nature and
special need of the said employer's trade, business or profession.

The term "de minimis benefits" which is exempt from the fringe benefit tax shall, in general, be
limited to facilities or privilege (such as entertainment, Christmas party and other cases similar
thereto; medical and dental services; or the so-called courtesy discount on purchases),
furnished or offered by an employer to his employees, provided such facilities or privileges are
of relatively small value and are offered or furnished by the employer merely as a means of
promoting the health, goodwill, contentment, or efficiency of his employees.

iii. De minimis benefits RR 03-98

As defined by RR 3-98 [MAY 21, 1998], de minimis benefits are benefits of relatively small value
offered or furnished by the employer to his/her employees as a means of promoting the health,
goodwill, contentment, efficiency of his/her employees. These benefits are exempt from the
withholding tax on compensation income, and consequently from income tax, regardless of
whether or not the recipients of the benefits are managerial or rank-and-file employees.

Examples of de minimis benefits include contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization benefit plans; or certain benefits given to
rank and file, whether granted under a collective bargaining agreement or not; or de minimis
benefits; or fringe benefits to the employee which is granted is required by the nature of or
necessary to the trade, business or profession of the employer; or such grant of the benefit or
allowance is for the convenience of the employer.

RR 10-00

The BIR sets a limit on the value of tax-exempt de minimis benefits. Under RR 8-00, as
amended by RR 10-00, the BIR considers the following as de minimis benefits:

 10 days monetized unused vacation leave credits;

 medical cash allowance to dependents of employees not exceeding P750 per semester
or P125 per month;
 actual medical benefits not exceeding P10,000.00;
 laundry allowance of P300 per month;
 employee achievement awards in the form of tangible personal property other than cash
or gift certificate, with an annual monetary value not exceeding P10,000 received by the
employee under an established written plan;
 flowers, fruits, books or similar items given to employees under special circumstances,
e.g. on account of illness, marriage, birth of a baby, etc.; and
 daily meal allowance for overtime work not exceeding 25% of the basic minimum wage.

RR 05-08

Effective beginning May 10, 2008, (Revenue Regulations No. 5-2008) employees receiving the
following benefits from their employers shall enjoy higher tax exemption thresholds:

 Rice allowance - from the current P1,000 per month to P1,500

 Uniform and clothing allowance - from the current P3,000 per year to P4,000

Note: All other benefits not mentioned above shall be not be considered as de minimis benefits
and shall be subject to withholding tax on compensation as per RR No. 5-2011 on March 16,
2011 amending the provisions of RR Nos. 2-98 and 3-98 pertaining to the exemption from
income tax from compensation and from fringe benefits tax of de minimis benefits.

RR 010-08

Sec. 2.78.1. Withholding of Income Tax on Compensation Income.-

(A) Compensation Income Defined. –
(3) Facilities and privileges of relatively small value. — Ordinarily, facilities and privileges (such
as entertainment, medical services, or so-called "courtesy” discounts on purchases), otherwise
known as "de minimis benefits," furnished or offered by an employer to his employees, are not
considered as compensation subject to income tax and consequently to withholding tax, if such
facilities or privileges are of relatively small value and are offered or furnished by the employer
merely as means of promoting the health, goodwill, contentment, or efficiency of his employees.

The following shall be considered as "de minimis" benefits not subject to income tax, hence, not
subject to withholding tax on compensation income of both managerial and rank and file
employees:

(a) Monetized unused vacation leave credits of employees not exceeding ten (10) days
during the year and the monetized value of leave credits paid to government officials and
employees;
(b) Medical cash allowance to dependents of employees not exceeding P 750.00 per
employee per semester or P 125 per month;
(c) Rice subsidy of P 1,500.00 or one (1) sack of 50-kg. rice per month amounting to not
more than P 1,500.00;
(d) Uniforms and clothing allowance not exceeding P 4,000.00 per annum;
(e) Actual yearly medical benefits not exceeding P 10,000.00 per annum;
(f) Laundry allowance not exceeding P 300.00 per month;
(g) Employees achievement awards, e.g., for length of service or safety achievement, which
must be in the form of a tangible personal property other than cash or gift certificate, with an
annual monetary value not exceeding P 10,000.00 received by the employee under an
established written plan which does not discriminate in favor of highly paid employees;
(h) Gifts given during Christmas and major anniversary celebrations not exceeding P
5,000.00 per employee per annum;
(i) Flowers, fruits, books, or similar items given to employees under special circumstances,
e.g., on account of illness, marriage, birth of a baby, etc.; and
(j) Daily meal allowance for overtime work not exceeding twenty five percent (25%) of the
basic minimum wage.

The amount of ‘de minimis’ benefits conforming to the ceiling herein prescribed shall not be
considered in determining the P 30,000.00 ceiling of ‘other benefits’ excluded from gross
income under Section 32(b)(7)(e) of the Code. Provided that, the excess of the ‘de minimis’
benefits over their respective ceilings prescribed by these regulations shall be considered as
part of ‘other benefits’ and the employee receiving it will be subject to tax only on the excess
over the P 30,000.00 ceiling. Provided, further, that MWEs receiving ‘other benefits’ exceeding
the P 30,000.00 limit shall be taxable on the excess benefits, as well as on his salaries, wages
and allowances, just like an employee receiving compensation income beyond the SMW.

Any amount given by the employer as benefits to its employees, whether classified as “de
minimis” benefits or fringe benefits, shall constitute as deductible expense upon such employer.

Where compensation is paid in property other than money, the employer shall make necessary
arrangements to ensure that the amount of the tax required to be withheld is available for
payment to the Bureau of Internal Revenue.

RR 001-15

“De Minimis Benefits” are exempt from Income Tax as well as from Fringe Benefit Tax.

Section 2.78.1 (A)(3) of RR No. 2-98, as last amended by RR No. 8-2012, is further amended to
read as follows:
“Sec. 2.78.1(A)(3). Withholding Tax on Compensation Income. –
(A) …
(3) Facilities and privileges of relatively small value. –
(k) Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and
productivity incentive schemes provided that the total annual monetary value received from both
CBA and productivity incentive schemes combined do not exceed ten thousand pesos (Php
10,000.00) per employee per taxable year;

Section 2.33 (C) of RR No. 3-98, as last amended by RR No. 8-2012, is further amended to
read as follows:
“Sec. 2.33. Special Treatment of Fringe Benefits. –
(C) Fringe Benefits Not subject to Fringe Benefit Tax. –
(k) Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and
productivity incentive schemes provided that the total annual monetary value received from both
CBA and productivity incentive schemes combined, do not exceed ten thousand pesos (Php
10,000.00) per employee per taxable year;

Sec. 6, RR 11-2018

Sec. 2.57 (G) Fringe Benefits Granted to the Employee (Except Rank and File Employee).

Employee is a citizen/resident alien/nonresident alien engaged in trade or business within the

Philippines - Thirty-five percent (35%)

Employee is a non-resident alien not engaged in trade or business within the Philippines -
Twenty-five percent (25%)
Fringe benefits, however, which are required by the nature of or necessary to the trade,
business or profession of the employer, or where such fringe benefit is for the convenience and
advantage of the employer shall not be subject to the fringe benefit tax.

The term fringe benefit means any good, service or other benefit furnished or granted in cash or
in kind by an employer to an individual employee (except rank and file employees) such as but
not limited to, the following:
(1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the
difference between the market rate and actual rate granted;
(6) Membership fees, dues and other expenses borne by the employer
for the employee in social and athletic clubs or other similar
organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums or
similar amounts in excess of what the law allows.

RR 005-11; RR 008-12

As provided in RR No. 005-11 [March 16, 2011], as amended recently by RR No. 008-12 [MAY
11, 2012], the following shall be considered de minimis benefits not subject to income tax as
well as withholding tax on compensation income of both managerial and rank and file
employees:

1. Monetized unused vacation leave credits of private employees not exceeding ten (10) days
during the year;
2. Monetized value of vacation and sick leave credits paid to government officials and
employees;
3. Medical cash allowance to dependents of employees, not exceeding P750 per employee per
semester or P125 per month;
4. Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than
P1,500;43
5. Uniform and clothing allowance not exceeding P5,000 per annum;44
6. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs,
annual medical check-up, maternity assistance, and routine consultations, not exceeding
P10,000 per annum;45
7. Laundry allowance not exceeding P300 per month;46
8. Employees achievement awards, e.g. for length of service or safety achievement, with an
annual monetary value not exceeding P10,000;47
9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum;48
10. Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the
basic minimum wage per region basis.49

The enumeration of de minimis benefits is exclusive. As provided in RR No. 005-11 [March

16, 2011], all other benefits given by employers which are not included in the enumeration shall
not be considered de minimis benefits, and, hence, shall be subject to income tax as well as
withholding tax on compensation income.

iv. Bonuses, 13th month pay, other benefits, unless exempt in Sec. 32 (8), NIRC

Bonuses to employees are allowable deductions from gross income provided that:
1. They are made in good faith
2. They are given for personal services actually rendered
3. The bonus when added to salaries is reasonable when measured by the amount and quality
of the services performed with relation to the business of the particular taxpayer.
(KUENZLE & STREIFF V. COLLECTOR [106 PHIL. 355]; C.M. HOSKINS & CO., INC. VS.
COMMISSIONER OF INTERNAL REVENUE [NOVEMBER 28, 1969])

13th month pay and other benefits are not included in compensation income. In fact, they are
excluded from gross income (Section 32(B)(7)(e), Tax Code)

When the aggregate amount of monetary benefits like bonuses, and 13th month pay in addition
to the basic salary/wage exceed P30,000, they shall be included in the taxable compensation
income.

v. GSIS, SSS, Philhealth, Pag-ibig contributions and union dues

GSIS, SSS, Medicare, Pag-Ibig and other contributions and union dues of individuals are not
included in compensation income as they are excluded from gross income (see Section 32(B)
(7)(f), Tax Code)

2. Income from Business, Sec. 32(A) (2), NIRC

Business income refers to gross income derived from the conduct of trade or business or the
exercise of a profession.

Business income shall be subject to the graduated rates in the case of individuals and the
corporate income tax in the case of corporations.

3. Professional Income, Sec. 32 (A) (2), NIRC; Sec. 2 (n), RR 8-2018

Professional income refers to fees received by a professional from the practice of his profession
provided that there is no employer-employee relationship between him and his clients. It
includes the fees derived from engaging in an endeavor requiring special training as a
professional as a means of livelihood, which includes, but is not limited to, the fees of CPAs,
doctors, lawyers, engineers and the like (RR No. 2-98)

----

4. Income from dealings in property, Sec. 32 (A) (3), NIRC

Gross income means all income derived from whatever source, one of which is (3) Gains
derived from dealings in property.

Only gains derived from the sale or exchange of property considered as ordinary assets.

Thus, if what is sold is an ordinary asset, any gain from the sale thereof shall form part of the
ordinary income which shall be subject either to graduated income tax rates (if individual) or
corporate income tax (if corporation). On the other hand, if what is sold is a capital asset, it is
subject to capital gains tax.

Rodriguez v. Collector, 28 SCRA 1119

 Income from expropriation proceedings is income from sales or exchange and

therefore taxable.

FACTS:
On July 17, 1948, Congress enacted Republic Act No. 333, pursuant to which the Republic of
the Philippines sued the petitioner for the expropriation of his land property. Later, they
entered into a compromise agreement where the Government paid to petitioner the sum of
P1,238,204.00, of which P625,315.90 were in Government Bonds.
On March 1, 1951, petitioner filed its income tax return for the year 1950. petitioner did not
include the sum of P625,315.90 received by it from the government in the form of bonds in
payment of its expropriated properties, in the belief that the said amount was free or exempt
from taxation. When this return was later examined by an agent of the Bureau of Internal
Revenue, the Collector of said bureau assessed against petitioner a deficiency income tax of
P63,880.00.

When it was returned unpaid, CIR filed an action in the CFI of Manila. Petitioner's offer of a
reduced amount was also rejected by CIR. Thus, Petitioner filed a petition in the CTA.

Petitioner's Contention:
Under Republic Act No. 333, "Said bonds shall be exempt from taxation by the Government
of the Republic of the Philippines or by any political or municipal subdivisions thereof, which
fact shall be stated upon their face, in accordance with this Act, under which the said bonds
are issued."

CTA: Brushed aside the petitioner's contention. It stated that "The income from the sale of the
land in question and the bond are two different and distinct taxable items so that the
exemption of one does not operate to exempt the other, unless the law expressly so
provides."

ISSUE: Whether or not in determining the profit realized from the payment of the
expropriated property, for income tax purposes, tax-exempt bonds issued by the
Republic should be included

RULING:

Yes. They are not exempted. The Collector of Internal Revenue is right in assessing against
petitioner the deficiency income tax in question, consonant with the proposition that income
from expropriation proceedings is income from sales or exchange and therefore taxable.

It has been the constant and uniform holding of this Court that exemption from taxation is not
favored and is never presumed; in fact, if it is granted, the grant must be strictly construed
against the taxpayer. Affirmatively put, the law requires courts to frown on alleged exemptions
from taxation, hence, an exempting provision in a legislative enactment should be construed
in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.

The above rule should be applied to the case at bar where the law invoked (Section 9 of
Republic Act No. 333) does not make any reference whatsoever to exemption of income
derived from sale of expropriated property.

The pertinent Congressional Record of the proceedings held during the consideration of the
bill which later became Republic Act No. 333, 8 does not show that Congress had intended to
exempt said property owners from the payment of income tax on the proceeds of the sale of
their properties when the same is paid in government bonds issued under the said law.

Gonzales v. CTA, 14 SCRA 71

 Interest does not form part of the price paid by the Government in condemnation
proceedings; and may not be treated as part of the capital gain.

FACTS:
This case involves an inherited real property located at Caloocan, Rizal. Such is the object of
expropriation proceedings where the Government paid the following amount to each of the 6
heirs (2 of which are petitioner Jose Leon Gonzales and Juana F. Gonzales)

 P213,328.82 - capital gain / heir (from the total of P1,279,973.00)

 P89,305.61 - share of interest / heir (from the total of P535,857.70)

In 1954 petitioner filed describing the amounts above. On the basis of such income, each of
the petitioners was assessed P86,166.00.

In 1956, petitioners Jose and Juana Gonzales sought the refund of P24,426.00 each
allegedly representing excess payment of income taxes for 1954.
Contention:
The amount of P89,309.61 representing interest, was taxed as ordinary income and not
merely capital gain. It should be taxed as a capital gain.
Thereafter, the siblings filed a refund in the CTA. The CTA denied the petitioners' claim.

ISSUE: Whether or not the sum of P89,309.61 which each of the appellants had received as
share in the interest on the proceeds of the expropriation should be taxed as capital gain or
as ordinary income

RULING: As ordinary income.

(It is to be noted that the claim for refund in this case has been barred by prescription.)

To say that the proceeds of expropriation which is the return of capital and, therefore, a
capital gain, partakes of the same nature as interests paid thereon is far from correct;
because interest is compensation for the delay in the return of such capital. In fact, the
authorities support the conclusion that for income tax purposes, interest does not form part of
the price paid by the Government in condemnation proceedings; and may not be treated as
part of the capital gain.

In this case, the property was turned over in January, 1947. This was the sale. Title then
passed. The subsequent earnings of the property went to the Government. The transaction
was as though a purchase money lien at legal interest was retained upon the property. Such
interest when paid would, of course, be ordinary income.

The interest paid was ordinary income, bearing in mind that the Tax Code provides: SEC. 29.
Gross Income. — General Definition. — "Gross income" includes gains, profits, and income
derived from ... interests, rents, dividends, securities, or the transactions of any business
carried on for gain or profit, or gains, profits and income derived from any source whatever.

Gutierrez v. CTA, IO 1 Phil 1 73

 The acquisition by the Government of private properties through the exercise of the
power of eminent domain, said properties being JUSTLY compensated, is embraced
within the meaning of the term "sale" "disposition of property", and the proceeds from
said transaction clearly fall within the definition of gross income laid down by Section
29 of the Tax Code of the Philippines.

FACTS:

Maria Morales, married to Gutierrez(spouses), was the owner of an agricultural land. The US
Gov't (pursuant to Military Bases Agreement) wanted to expropriate the said land to expand
the Clark Field Air Base.

Plaintiff Republic deposited a sum of PhP152K to be able to take immediate possession.

In an assessment notice, CIR demanded payment of Php 8k for deficiency of income tax for
the year 1950.

The spouses contend that the expropriation was not taxable because it is not "income derived
from sale, dealing or disposition of property" as defined in Sec. 29 of the Tax Code. The
spouses further contend that they did not realize any profit in the said transaction. CIR did not
agree.

The spouses appealed to the CTA. The Solicitor General, in representation of the respondent
CIR, argued that the profit realized by petitioners was subject to income tax and included in
the income received in 1950. CTA favored SolGen but disregarded the penalty charged. Both
parties appealed to the SC.

ISSUES:
1. Whether or not the expropriation should be deemed as income from sale and any profit
derived therefrom is subject to income taxes

HELD: Yes to both. CTA decision affirmed. It is subject to income tax.

U.S jurisprudence has held that the transfer of property through condemnation proceedings is
a sale or exchange within the meaning of section 117 (a) of the 1936 Revenue Act and profit
from the transaction constitutes capital gain. "The taking of property by condemnation and
the, payment of just compensation therefore is a "sale" or "exchange" within the meaning of
 section 117 (a) of the Revenue Act of 1936, and profits from that transaction is capital gain."

SEC. 29. GROSS INCOME. — (a) General definition. — "Gross income" includes gains,
profits, and income derived from (among others) sales or dealings in property, whether real or
personal, growing out of ownership or use of or interest in such property...

SEC. 37. INCOME FROM SOURCES WITHIN THE PHILIPPINES.

—
(a) Gross income from sources within the Philippines. — The following items of gross income
shall be treated as gross income from sources within the Philippines:
xxxxxxxxx
(5) SALE OF REAL PROPERTY. — Gains, profits, and income from the sale of real property
located in the Philippines;
xxxxxxxxx

It appears then that the acquisition by the Government of private properties through the
exercise of the power of eminent domain, said properties being justly compensated, is
embraced within the meaning of the term "sale" "disposition of property", and the proceeds
from said transaction clearly fall within the definition of gross income laid down by Section 29
of the Tax Code of the Philippines.

The records show that the property in question was adjudicated to Maria Morales by order of
the Court of First Instance of Pampanga on March 23, 1929, and in accordance with the
aforequoted section of the National Internal Revenue Code, only the fair market price or value
of the property as of the date of the acquisition thereof should be considered in determining
the gain or loss sustained by the property owner when the property was disposed, without
taking into account the purchasing power of the currency used in the transaction. The records
placed the value of the said property at the time of its acquisition by appellant Maria Morales
P28,291.73 and it is a fact that same was compensated with P94,305.75 when it was
expropriated. The resulting difference is surely a capital gain and should be correspondingly
taxed.

i. Type of properties aa. ordinary assets bb. capital assets

- What is capital asset
Sec. 39(A) (1 ), NIRC

Capital Assets

The term capital assets means property held by the taxpayer whether or not connected with his
trade or business, except those enumerated as ordinary assets in Section 39.

Note:
(1) The statutory definition of capital assets is negative in nature. If the asset is not among the
exceptions, it is a capital asset; conversely, assets falling within the exceptions are ordinary
assets.
(2) There is no rigid or fixed formula to determine with finality whether property is a capital or
ordinary asset. Each case must rest upon its own peculiar facts and circumstances (CALASANZ
V. CIR [144 SCRA 664]

Ordinary Assets

1. Stock in trade of the taxpayer or other property of a kind which would properly be included in
the inventory of the taxpayer if on hand at the close of the taxable year
2. Property held by the taxpayer primarily for sale to customers in the ordinary course of his
trade or business
3. Property used in trade or business of a character that is subject to allowance for depreciation
4. Real property used in trade or business of the taxpayer
(Section 39 Tax Code, and Section 132, RR 2)

Rev. Regs. 07-03

With respect to taxpayers engaged in the real estate business, the following real properties shall
be classified as ordinary assets: 1) all real properties acquired by the real estate dealer; 2) all
real properties acquired by the real estate developer, whether developed or underdeveloped as
of the time of acquisition, and all real properties which are held by the real estate developer
primarily for sale or for lease to customers in the ordinary course of his trade or business or
which would properly be included in the inventory of the taxpayer if on hand at the close of the
taxable year and all real properties used in the trade or business, whether in the form of land,
building, or other improvements; 3) all real properties acquired by the real estate lessor, whether
land and/or improvements, which are for lease/rent or being offered for lease/rent, or otherwise
for use or being used in the trade or business; and 4) all real properties acquired in the course
of trade or business by a taxpayers habitually engaged in the sale of real estate.

In the case of a taxpayer not engaged in the real estate business, real properties, whether land,
building, or other improvements, which are used or being used or have been previously used in
the trade or business of the taxpayer shall be considered as ordinary assets. However, real
property used by an exempt corporation in its exempt operations shall not be considered used
for business purposes, and therefore, considered as capital asset.

In the case of changing of taxpayers’ business from real estate business to non-real estate
business shall not result in the re-classification of real property held by it from ordinary asset to
capital asset.

In the case of subsequent non-operation by taxpayers originally registered to be engaged in the

real estate business, all real properties originally acquired by it shall continue to be treated as
ordinary assets.

Real properties formerly forming part of the stock in trade of a taxpayer engaged in the real
estate business, or formerly being used in the trade or business of a taxpayer engaged or not
engaged in the real estate business, which were later on abandoned and became idle, shall
continue to be treated as ordinary assets.

Real property initially acquired by a taxpayer engaged in the real estate business should not
result in its conversion into a capital asset even if the same is subsequently abandoned or
becomes idle.

Provided however, that properties classified as ordinary assets for being used in business by a
taxpayer engaged in business other than real estate business are automatically converted into
capital assets upon showing of proof that the same have not been used in business for more
than two (2) years prior to the consummation of the taxable transactions involving said
properties.

Real properties classified as capital or ordinary asset in the hands of the seller/transferor may
change their character in the hands of the buyer/transferee. The classification of such properties
shall be determined in accordance with the rules specified in the Regulations.

In the case of involuntary transfer of real properties, including expropriation or foreclosure sale,
the involuntariness of such sale shall have no effect on the classification of such real property in
the hands of the involuntary seller.

Gains/income derived from sale, exchange, or other disposition of real properties shall, unless
otherwise exempt, be subject to applicable taxes (as specified in the Regulations), depending
on whether the subject properties are classified as capital assets or ordinary assets.

- Distinction between ordinary asset and capital asset.

Capital Assets Ordinary Assets

Means property held by the taxpayer whether Means property used in trade or business or
or not connected with his trade or business, primarily held for sale by the taxpayer.
except those enumerated as ordinary assets
in Section 39.
Can be converted to an ordinary asset Cannot be converted into a capital asset
(CALASANZ V. CIR) Except: used in business than real estate
business
The gain from the sale thereof shall be The gain from the sale thereof shall form part
subject to the final capital gains tax of the ordinary income which shall be subject
either to graduated income tax rates (if an
individual) or corporate income tax (if a
corporation).

- Long term capital gain v. short term capital gain Sec. 39 (B), NIRC

Short-term capital gain Long-term capital gain

If the capital asset has been held for not If the capital asset has been held for more
more than 12 months than 12 months

ii. Types of gains from dealings in property

aa. Ordinary income v. capital gain, Sec. 39 and Sec. 22 (Z), NIRC

Ordinary Gain Capital Gain

Any gain from the sale or exchange of The gains realized from the sale, exchange,
property which is not a capital asset or or other disposition of the properties of a
property. taxpayer classified as capital assets.
Derived from property used in trade or Derived from property not used in trade or
business business whether or not connected thereto
Ordinary gains are not adjusted by the Some types of capital gains are adjusted by
holding period in Section 39(B) the holding period in Section 39(B)
Only ordinary losses may be deduced from Ordinary losses may be deducted from
ordinary gains certain types of capital gains
The concept of net operating loss carryover The concept of net loss carryover applies to
(NOLCO) applies to ordinary gains taxation capital gains taxation (NELCO)
Deductions are usually allowed for ordinary Generally no deductions are allowed from
gains capital gains
Ordinary gains are subject to the graduated Capital gains are subject to final taxes
rates or corporate income tax rate as the
case may be
Ordinary income is to be included in the Income from capital gains tax are not
annual income tax return included in the annual income tax return

bb. Actual v. presumed gain, Secs. 6 (E), 24(D), 27(D)(5), 100, NIRC

Actual gain Presumed gain

There is actual gain whenever an individual There is presumed gain whenever an
or corporation sold shares of stock treated as
individual sold real property treated as a
a capital asset capital asset located in the Philippines or a
corporation sold land/building treated as a
capital asset located in the Philippines
Actual gain arrived at by deducting the cost Presumed gain does not consider the cost of
or adjusted basis of the property sold from the property sold
the amount realized

cc. Net capital gain (loss), Sec. 39(A) (2) and (3), NIRC

Net capital gain Net capital loss

Means the excess of the gains from sales or Means the excess of the losses from sales or
exchanges of capital assets over the losses exchanges of capital assets over the gains
from such sales or exchanges from such sales or exchanges.

Tuason v. Lingad, 58 SCRA 170

Ferrer v. Collector, 5 SCRA 1022
Calasanz v. Commissioner, 144 SCRA 664 Gonzales v. CTA, Ibid.

iii. Special rules pertaining to income/loss from dealings in property

aa. Computation of the amount of the gain (loss), Sec. 40(A), NIRC
 - Basis of the property sold, Sec. 40(B), NIRC
- Basis of property exchanged in corporate adjustment, Sec. 40
(C) (5), NIRC
- Recognition of gain/loss in exchange of property General rule,
Sec. 40 (C) (1), NIRC

Exceptions
- Where no gain/loss shall be recognized, Sec. 40 (C) (2), NIRC
Revenue Memorandum Order (RMO) 17-16
Meaning of tax-free exchange/merger/ consolidation/ de
facto merger, Sec. 40(C) (6), NIRC
Com v. Rufino, 148 SCRA42
RMO 26-92
Rev. Regs. 18-2001
Rev. Memorandum Ruling (RMR) No. 01-01
RMR 01-02
RMO 32-2001
RMO 17-2002
RMR02-2002
----

- Transaction where gain is recognized but not the loss

Exchange not solely in kind

Sec. 40 (C)(3), NIRC
Sec. 40 (C)(4) NIRC

Wash sales/compared with short elling

Sec. 38, NIRC
Sec. 39, (F) (I), NIRC

Transactions between related taxpayers

Sec. 36 (B)

Illegal transactions
Sec. 96 RR 2-40

- Gains and losses attributable to the failure to exercise privileges

or options to buy/sell property, Sec. 39 (F) (2), NIRC

- Percentage of gain or loss taken into account (note: for

individuals only); holding period rule, Sec. 39 (B) NIRC

bb. Income tax treatment of capital loss

- Capital loss limitation rule (applicable to both corporations and

individuals), Sec. 39 (C) NIRC
- Net loss Carry-Over Rule (applicabl only to individuals), Sec. 39 (D),
NIRC

iv. Income from dealings in capital asset ubject to special rules

aa. Dealing in real property situated in the Philippines
RR 07-03
RR 13-99
RR 8-98
RMC 45-02

bb. Dealings in shares of stock of Philippines corporations

Definition of 'shares'
 Sec. 22(L), NIRC
shares listed and traded in the stock exchange
Sec. 127 (A), NIRC
shares not listed and traded in the stock exchange
Sec. 24(C), NIRC
Sec. 27(D)(2) NIRC
Sec. 28(A)(7)( c) NIRC
Sec. 127, NIRC
Sec 55 RR 2-40
RR 6-2008
RR 6-2013
RMC 73-07
----
cc. Other capital assets

v. Sale of Principal Residence

Sec. 24(D) (2), NIRC
RR 13-99, as amended by RR 14-2000, RR 17- 03, RR 30-03

5. Passive investment income

a. Interest income
Sec. 32(A)(4) NIRC
Sec. 24(B)(1) NIRC
Sec. 22(Y) NIRC
Sec. 22(FF) NIRC
Sec. 28 (A) (4), NIRC
Sec. 27(D)(3), NIRC
Sec. 28 (B) (5) (a), NIRC
Sec. 57, RR 2-40
Rev. Regs. 10-98
RMC 018-11
RMC 07-15

b. Dividend Income, Sec. 32 (A) (7), NIRC

i. Dividends, defined, Sec. 73 (A) (first paragraph) NIRC
ii. Kinds of dividends
aa. Cash dividend
bb. Stock dividend — Sec. 73 (B), NIRC
cc. Property dividend
dd. Liquidating dividend
Sec. 24 (B) (2), NIRC
Sec. 25 (A) (2) and (B), NIRC
Sec. 28 (A) (7) (d), NIRC
Sec. 28 (B) (5) (a), NIRC
Sec. 73 (D), NIRC
Commissioner v. Wander Phils., 160 SCRA 573
ee. Disguised dividend
RMO 31-90
Secs. 250-253, 58, 71 RR 2-40
CIR v. Manning, 66 SCRA 14
Republic v. dela Rama, 18 SCRA 861
c. Royalty income
Sec. 24 (B) (1), NIRC
Sec. 25 (A) (2), NIRC
Sec. 27 (D) (1), NIRC
Sec. 28 (A) (7) (a), NIRC
Sec. 28 (B) (1), NIRC
Sec. 42 (A) (4), NIRC
RMC 44-05
 RMC 77-2003
d. Rental income
Sec. 32 (A) (5), NIRC
Sec. 28 (B) (2); (3); (4), NIRC
Sec. 74, 79, 58 RR 2-40
Limpan v. CIR, 17 SCRA 703

----
i. Lease of Personal Property
ii. Lease of real property
iii. Tax Treatment of

aa. Leasehold improvements by lessee - Sec. 49, RR 2-40

bb. VAT added tor rental/paid by the lessee
cc. Advance rental

6. Annuities/Proceeds from life insurance/other type of insurance

Sec. 32(A) (8), NIRC
Sec. 48 RR 2-40

7. Prizes and awards, Sec. 32(A)(9), NIRC

8. Pensions/retirement benefits/separation pay, Sec. 32(A)(l0), NIRC
9. Partner's distributive ssharese from the net income of the GPP - Secs. 26 and 32 (A) (11 ),
NIRC
10. Income from any source whatever
a. Forgiveness of indebtedness, Sec. 50, RR 2-40
b. Recovery of accounts previously written off,
Sec. 34(E)(l ), NIRC;
tax benefit rule - RR 05-99
c. Receipt of tax refunds or credit, Sec. 34(C)(l), NIRC
d. Campaign contributions - RR 007-11

D. Situs/Sources of Income
1. Meaning of situs of income
2. Classification of income as to source
Sec. 42 (A) and (B), NIRC
Sec. 152-165, RR2
a. Gross or taxable income from sources within the Philippines
Sec. 42(A), (B), NIRC
Sec. 28(A)(3)(a) and (b), NIRC
Commissioner v. BOAC, Ibid.
NDC v. Commissioner ( 151 SCRA 4 72), Ibid.
Howden v. Collector (13 SCRA 601 ), Ibid.

b. Gross or taxable income from sources without the Philippines, Sec. 42 (C) and
(D), NIRC
c. Income partly within/partly without the Philippines, Sec. 42 (E), NIRC

3. Source Rules in determining income from within and without

a. Interests - residence of debtor
b. Dividends - residence of corporation paying dividend
c. Services - place of performance of service
d. Rentals and royalties - location of property or interest in such property
e. Sale of real property - location of real property
f. Sale of personal property - place of sale/title passage rule
g. Shares of stock of domestic corporation - place of incorporation of the
corporation whose shares are sold