CAGAYAN STATE UNIVERSITY

College of Law

Taxation Law 1
Maria Luisa J. Cepeda-Reyes

I. TAXATION

A. Definition
B. Nature of Internal Revenue Law
- Hilado v CIR, G.R. No. L-9408, October 31, 1956 100 Phil 288
C. Stages of Taxation ; levy, assessment and collection
D. Scope and Nature of Taxation (the characteristics of taxing power ; scope of legislative power
to act)
- Sec. 28, Art. VI, 1987 Constitution
- Sec. 5, Art. X, 1987 Constitution
- Sison v Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654
- Lutz v Araneta G.R. No. L-7859 (1955)]
- Tio v Videogram Regulatory Board, G.R. No. 75697 (1987)]
E. Underlying Theory and Basis; Necessity Theory; Benefit-Received Principle
- Commissioner v. Algue, G.R. No. L-28896, February 17, 1988, 158 SCRA9
- Lorenzo v. Posadas, G.R. No. 43082, June 18, 1937, 64 Phil 353
- Paseo Realty & Development Corporation v. CA, G.R. No. 119286 (2004)
F. Purpose of Taxation

General/Fiscal/Revenue
- Napocor v Province of Albay G.R. No. 87479, 4 June 1990
- Tolentino v. Secretary of Finance, G.R. No. 115455, August 8, 1994, 235
SCRA 630; 249 SCRA 628
Non-revenue/Special or Regulatory
- Southern Cross Cement Corporation v. Cement Manufacturers Association of the
Philippines, et al., G. R. No. 158540 (2005)
- Osmena v. Orbos, G.R. No. 99886, March 31, 1993, 220 SCRA 703
-PAL v Edu, G.R. No. L-41383, 164 SCRA 320
G. Principles of a Sound Tax System
- Chavez v Ongpin, G.R. No. 76778, June 6, 1990, 186 SCRA 331
- 1987 Constitution, Art. VI, Section 28(1)
H. Comparison with Police Power and Eminent Domain
- Roxas v. CTA, G.R. No. L-25043, April 26, 1968, 23 SCRA 276
- LTO v. City of Butuan, G.R. No. 131512, Jan. 20, 2000
- Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No.
159647, 15 April 2005

II. TAXES

A. Definition
B. Essential elements of taxes
-Republic v COCOFED, G.R. No. 147062-64, December 14, 2001
C. Kinds of Taxes as to object, purpose, burden, rate, scope, and graduation; progressive tax rate
v. progressive system of taxation
- Tolentino v. Secretary of Finance
- Mandanas v. Executive Secretary, GR No.s 199802 & 208488, 10 April 2019
D. Taxes distinguished from:
1. Debts
- Republic v. Mambulao Lumber Company, G.R. No. L-17725,
4 SCRA 622
- Philex Mining v. CIR, G.R. No.125704, August 28, 1998
- Domingo v Garlitos, G.R. No. L-18994, June 29, 1963, 8 SCRA
443
2. License Fees
-Progressive Dev. Corp. v QC, G.R. No. L-36081, April 24, 1989,
172 SCRA 629
- Ferrer, Jr. V. Bautista, G.R.No. 210551, June 30, 2015
3. Special Assessment
 - Lutz v. Araneta (supra)
- Republic v. Central Azucarera de Danao, G.R. No. L-19842, December 26,
1969
• Special Levy
- Apostolic Prefect v Treasurer of Baguio, G.R. No. L-47252, April
18, 1941, 71 Phil. 547
- Sec. 240, RA 7160
5. Tolls
- Diaz v. Secretary of Finance, G.R. No. 193007, July 19, 2011
6. Penalty
- NDC v CIR 151, G.R. No. L-53961, June 30, 1987, SCRA 472
7. Customs Duties

D. Escape from Taxation; Tax Evasion; Tax Avoidance

- Sec. 254, NIRC
- Republic v. Gonzales, G.R. No. L-17962, April 30, 1965, 13 SCRA 633
- Delpher Traders v. IAC, G.R. No. L-69259, January 26, 1988, 157 SCRA
349
- CIR v. Lincoln Philippine Life, G.R. No. 119176, Mar. 19, 2002
E. Shifting of Tax Burden

III. SOURCES OF TAX LAW

 B. Constitution

C. Statutes
- RA 8424, as amended by RA 9337, RA 9504, etc.
- Tariff and Customs Code, as amended
- Book II, Local Government Code
- Special Laws
D. Administrative Issuances
- Secs. 244 – 245, NIRC
- Art. 7, Civil Code
- CIR v. Fortune Tobacco, G.R. No. 119761. August 29, 1996
- CIR v. San Miguel Corporation, G.R. No. 184428, November 23,
2011
- Section 201(a),(e)(1)&(2), CMTA
- COC and the District Collector of the Port of Subic v. Hypermix
Feeds Corporation, G.R. No. 179579, Feb. 1, 2012
E. Tax/Revenue Ordinances
-Hagonoy Market Vendor v. Municipality of Hagonoy, G.R. No. 137621, February
6, 2002
F. Tax Treaties
- Deutsche Bank AG Manila Branch v. CIR, G.R. No. 188550, August 19, 2013
- Air Canada v CIR, G.R. No. 169507, January 11, 2016

G. Case Laws (SC/CTA)

H. Legislative Materials

WEEK TWO

IV. LIMITATIONS UPON THE POWER OF TAXATION

INHERENT LIMITATIONS

A. Public Purposes
- Lutz v Araneta, G.R. No. L-7859, December 22, 1955, 98 Phil. 48
- Pascual v Sec. of Public Works, G.R. No. L-10405, December 29, 1960,
110 Phil. 331
- Planters Products v Fertiphil Corporation, G.R. No. 166006, March 14, 2008

B. Delegation of Taxation Power

- Sec 5, Art. X, 1987 Constitution
- Sec. 28(2), Art. VI, 1987 Constitution
- Art. VI, Sec. 23(2), 1987 Constitution
- Sec. 401, Tariff and Customs Code, as amended

- LTO v. City of Butuan, G.R. No. 131512, January 20, 2000

- Osmena v. Orbos, G.R. No. 99886, March 3, 1993, 220 SCRA 703
- CIR v. CA, G.R. No. 119761, August 29, 1996
-ABAKADA v. Executive Secretary, G.R. NO. 168056 : September 01, 2005

C. Exemption of Government Agencies

- Secs. 27(C) and 30(I), NIRC
- Executive Order 93
- PD 1931
- Sec. 133 (o), Local Government Code
- Mactan Cebu Airport v. Marcos, G.R. No. 120082, Sept. 11, 1996
- MWSS v CBAA, G.R. No. 215955. January 13, 2021
- CIR v BCDA, G.R. No. 217898. January 15, 2020

D. Territoriality or Situs of Taxation

 - Manila Gas v. Collector, G.R. No. 42780. January 17, 1936
- CIR v. BOAC, G.R. Nos. L-65773-4, April 30, 1987
- Collector v. Lara, G.R. No. L-9456 & L-9481, January 6, 1958

E. International Comity
- Sec. 2, Art. 11, 1987 Constitution
- Tanada v. Angara, G.R. No. 118295, May 2, 1997
- Mitsubishi Corp. v. CIR, CTA Case 6139, Dec. 17, 2003

CONSTITUTIONAL LIMITATIONS

A. Due Process Clause

- Sec. 1, Art. III, 1987 Constitution
- Com. of Customs v CTA & Campos Rueda Co., 152 SCRA 641
- Phil Bank of Comm v. CIR, G.R. No. 112024, January 28, 1999, 302 SCRA
241
- Sison v Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654
- CIR v. Avon Products Mfg., G.R. Nos. 201398-99, October 03, 2018
B. Equal Protection Clause
- Sec. 1, Art. III, 1987 Constitution
- Ormoc Sugar Co. v. Treasurer of Ormoc City, G.R. No. L-23794,
February 18, 1968, 22 SCRA 603
- Shell Co. v Vano, G.R. No. L-6093, Februrary 24, 1954, 94 Phil. 388
- Tiu v. CA, G.R. No. 127410, January 20, 1999
- Phil. Rural Electric v. Secretary, G.R. No. 143706, June 10, 2003
C. Rule of Taxation shall be Uniform and Equitable
- Sec. 28(1), Art. VI, 1987 Constitution
- British American Tobacco v. Camacho, G.R. No. 163583, April 15, 2009
D. Non- Impairment of Contracts
- Sec. 10, Art. III & Sec. 11, Art. XII, 1987 Constitution
- Tolentino v. Sec of Finance (supra)
- PAGCOR v. BIR, G.R. No. 172087, March 15, 2011
E. Non- Imprisonment for Non-payment of Poll Tax
- Sec. 20, Art. III, 1987 Constitution
F. Prohibition against Taxation of Religious and Charitable Institutions
- Sec. 28(3), Art. VI, 198Constitution
- Lladoc v CIR, G.R. No. L-19201, June 16, 1965, 14 SCRA 292
- Lung Center of the Philippines v. Quezon City, G.R. No. 144104, June 29, 2004
G. Prohibition against Taxation of Non-stock Non-profit Educational Institutions
- Sec. 4(3), Art. XIV, 1987 Constitution
- Sec. 28(3), Art. VI, 1987 Constitution
- Secs. 27(B) and 30(H), NIRC
- CIR v. CA & YMCA, G.R. No. 124043, October 14, 1998, 298 SCRA 83
- De La Salle University, Inc. v. CIR, G.R. No. 196596, November 9, 2016

H. Freedom of Religious Worship; non-establishment of religion

- Sec 29, Art. VI, 1987 Constitution
- Sec. 5, Art. III, 1987 supra
- American Bible Society v Manila, G.R. No. L-9637, April 30, 1957
- Tolentino v. Sec of Finance (supra)
-Aglipay v Ruiz, G.R. No. L-45459, March 13, 1937
I. Passage of Tax Bills/ Granting of Tax Exemption
- Sec. 24, Art. VI, 1987 Constitution
- Sec. 28(4), Art. VI, 1987 Constitution
- Tolentino v Secretary of Finance (supra)
- ABAKADA v. Executive Secretary (supra)

J. Veto Power of the President

- Sec. 27(2), Art. VI, 1987 Constitution
K. Non-impairment of SC Jurisdiction
- Sec. 2 Art VIII, 1987 Constitution
 - Sec. 5(2)(b), Art. VIII, supra

WEEK
THREE

V. CONSTRUCTION OF TAX LAWS

A. General Rules of Construction of Tax Laws

- Luzon Stevedoring v Trinidad, G.R. No. L-18316, September 23, 1922, 43 Phil.
803
B. Mandatory vs. Directory Provisions
- Roxas v. Rafferty, G.R. No. 12182, March 27, 1918, 37 Phil 958

VI. EXEMPTIONS FROM TAXATION

A. In General
- PLDT v. Davao City, G.R. No. 143867, August 22, 2001
- CIR v. Seagate Technology, G.R. No. 153866, February 11, 2005
- Republic v Caguioa, G.R. No. 168584, October 15, 2007
B. Compared with Other Terms
• Tax Remission/Condonation
- Surigao Con. Min. v. Collector, G.R. No. L-14878, December 26, 1963,
• Compromise and Abatement
- Section 204, NIRC as amended
- Qatar Airways v CIR, G.R. No. 238914. June 8, 2020
• Tax Amnesty
- CIR v. Marubeni, G.R. No. 137377, December 18, 2001
• Exclusion/Deduction
- Sec. 32(B), NIRC
- Sec. 34, NIRC

C. Construction of Tax Exemptions

- CIR v CA & YMCA, G.R. No. 124043, October 14, 1998, 298 SCRA 83
- Misamis Oriental Assoc. V. DOF, G.R. No. 108524, November 10, 1994,
238 SCRA 63

VII. OTHER DOCTRINES IN TAXATION

A. Prospectivity of Tax Laws

- Republic v. Fernandez, G.R. No. L-9141. September 25, 1956
- Central Azucarera v. CTA, G.R. No. L-23236, May 31, 1067
- Sec. 246, NIRC
B. Imprescriptibility of Taxes
- CIR v. Ayala Securities Corp., G.R. No. L-29485, November 21, 1980
C. Double Taxation
- CIR v. SC Johnson & Sons, Inc., G.R. No. 127105, June 25, 1999
- Star Appliance v. City of Manila, G.R. No. 180651, July 30, 2014
D. Power to Tax Involves the Power to Destroy
- Sison v. Ancheta, G.R. No. 59431, July 25, 1984, 130 SCRA 654
- Roxas v. CTA, G.R. No. L-25043, April 26, 1968, 23 SCRA 276
E. Doctrine of Equitable Recoupment
- Collector v. University of Sto. Tomas, G.R. No. 11274, 104 Phil. 1062
G. Taxpayer’s Suit
- Bagatsing v. San Juan, G.R. No. 97787, August 1, 1996, 329 Phil. 8-15

VIII. FUNCTIONS OF THE BIR; JURISDICTION OF THE COURT OF TAX APPEALS

A. Powers and Duties of the BIR ; Interpret Tax Laws and Decide Tax Cases
• Sections 2-18, 21, 246, 244-246, Tax Code
 • DOF Department Order No. 7-02, as circularized by RMC No. 40-A-02
• Marcos v CA, G.R. No. 120880 June 5, 1997
• Philippine Bank of Communications v. CIR, G.R. No. 112024 January 28, 1999
• CIR v. Hedcor Sibulan, Inc., G.R. No. 209306, September 27, 2017
• Oceanic Wireless Network v. CIR - G.R. No. 148380, December 9, 2005
• Philippine American Life v Secretary of Finance, G.R. No. 210987, November 24,
2014
B. Chief Officials of the BIR
• Section 3, Tax Code
C. The Court of Tax Appeals
• Composition : Section 1, RA No. 1125 (June 16, 1954), as amended by RA Nos. 9282
(March 30, 2004) and 9503 (June 12, 2008) Section 2, RA No. 1125, as amended by
RA Nos. 9282 and 9503
• Jurisdiction : Section 7, 11, 18, and 19, RA No. 1125 as amended by RA No. 9282
• CIR v CTA, G.R. No. 210501/G.R. No. 211294/G.R. No. 212490. March 15, 2021
• City of Manila v Judge Grecia Cuerdo, G.R. No. 175723, February 4, 2014

WEEK
FOUR

I. BASIC STRUCTURAL AND DEFINITIONAL CONCEPTS

A. Income

• Meaning of Income; income v. recovery of capital investment

Commissioner v. Glenshaw Glass Co., 348 U.S. 426

Cesarini v. United States, 296 F.Supp. 3 (N.D. Ohio 1969), aff’d per curiam, 428 F.2d
812 (6th Cir. 1970).

- Sec. 32(A), 40(A) NIRC

- Sec. 36, Revenue Regulations No. 2
- Association of Non-Profit Clubs, Inc. v. Bureau of Internal Revenue, G.R. No. 228539, June
26, 2019
- CIR v. BOAC, G.R. No. L-65773-74 April 30, 1987
 • Severance or realization; actual and constructive receipt; imputed income

Eisner v. Macomber, supra

Helvering v. Horst, 311 U.S. 112 (1940)
CIR v. CA, CTA, & Anscor, 301 SCRA 152 (1999)

- Sec. 38 and 41, Revenue Regulations No. 2

- CIR v. CA, CTA & Anscor, G.R. No. 108576 January 20, 1999
- CIR v. Solidbank, G.R. No. 148191, Nov. 25, 2003

• Windfall Receipts

- Commissioner v. Glenshaw Glass, 348 U.S. 426 (1955)

• Recovery of Deducted Items: Tax Benefit Principles

- Section 34(E)(1), NIRC

• Indirect Receipts – condonation, cancellation of Indebtedness and Discharge by Third

Parties
- Section 50, Rev. Regs. No. 2

- Old Colony Trust Co. v. CIR, 279 U.S. 716 (1929)

• Discharge of Indebtedness Income

- United States v. Kirby Lumber Co., 284 U.S. 1 (1931)

• Income from Unlawful Activities; Amounts Received Under Claim of Right

- CIR v. Javier, G.R. No. 78953, July 31, 1991\
- Republic v. Sandiganbayan, GR. No. 152154, July 15, 2003;
- Marco Jr. v. Republic, GR No. 189434, April 25, 2012;
- Marcos v. Republic, G.R. No. 213027, Jan 18, 2017
- Republic v. Marcos, Sandiganbayan Case No 0141, Dec 19, 2019.
- North American Oil Consolidated v. Burnet, 286 U.S. 417 (1932)

• Intangible Benefits: Non-cash Compensation; Satisfaction of Obligation

- Raytheon Production Corporation v. Commissioner 144 F.2d 110 (1944)

- Old Colony Trust Co. v. Commissioner, 279 U.S. 716 (1929):

B. Income Tax
C. When is Income Taxable?
- Secs. 43-44, NIRC
- Secs. 51-53, Revenue Regulations No. 2
- CIR v. Tours Specialist, G.R. No. L-66416, March 21, 1990
- CIR v. Filinvest Development Corporation, G.R. No. 163653, July 19, 2011
- ING Bank v CIR, G.R. No. 167679, July 22, 2015

D. Capital Gain; Ordinary Gain; Presumed Gain

- Capital Gain
- Ordinary Gain
- Business Income
- Income from Trade/Practice of Profession
- Passive Income
- Other Forms
- Presumed Gain
- Sec. 24(D), NIRC
E. Income Tax Systems
- Global Tax System
 - Schedular Tax System
- Sison v. Ancheta, GR L-59431, July 25, 1984
- Semi-schedular or Semi-global Tax System
F. Criteria in Imposing Philippine Income Tax
- Nationality/Citizenship
- Residence
- Source
- Sec. 23, NIRC
G. Tax Treaties

WEEK FIVE

II. GROSS INCOME: INCLUSIONS AND EXCLUSIONS

• Income from Whatever Source

- Secs. 31-32, NIRC
- Sec. 61, Revenue Regulations No. 2

• Situs of Income
- Sec. 42, NIRC
- Secs. 152-165, Revenue Regulations No. 2

• From Sources Within the Philippines

- Sec. 42 (A,B), NIRC
- CIR v. BOAC, G.R. No. L-65773-74, April 30, 1987, 149 SCRA 395
- NDC v. CIR, G.R. No. L-53961, June 30, 1987, 151 SCRA 472
- CIR v. Baier-Nickel, G.R. No. 165793, August 29, 2006
- Manila Electric v. Yatco, G.R. No. 45697, November 1, 1939 69 Phil 89
- Phil. Guaranty v. CIR, G.R. No. L-22074, Apr. 30, 1965

• From Sources Without the Philippines

- Sec. 42(C), NIRC

• Partly Within/Without the Philippines

- Sec. 42(E), NIRC

B. Compensation Income
- Sec. 32(A), NIRC
- Rep. Act No. 10963 (TRAIN Law), Dec. 19, 2017
- Revenue Regulations No. 11-2018, Jan. 31, 2018, as amended by RR 14-18
- Revenue Memorandum Circular No. 050-18, May 11, 2018
- Sec. 2.78.1(A), Revenue Regulations No. 2-98
- Sec. 2.78.1(A), Revenue Regulations No. 2-98
- Sec. 2.83.5, Revenue Regulations No. 10-2008
- Sec. 2.83.6, Revenue Regulations No. 2-98
- Revenue Memorandum Circular No. 34-2008

- Henderson v. Collector, 1 SCRA 649; Convenience of the Employer Rule

- Polo v. CIR, G.R. No. L-78780, July 23, 1987
- ING Bank v CIR, G.R. No. 167679, July 22, 2015

• Fringe Benefits
- Revenue Regulations Nos. 3-98, 8-2000, 10-2000, 05-2008, 05-2011
- Revenue Regulations No. 10-2002
- Revenue Memorandum Circular No. 88-2012, December 27, 2012

• Exclusions:
 • Compensation for Injuries or Sickness
- Sec. 32(b)(4), NIRC
13th Month Pay and Other benefits
- Sec. 32 (7)(b,e), NIRC

• Income Exempt Under Treaty

- Sec. 28(b)(4), NIRC

• Exemption under special laws, e.g. Bayanihan II Act (RA 11494)

C. Pensions/Retirement Benefits/Separation Pay

- Sec. 32(A)(10), NIRC
• Exclusions:
- Sec. 32(6)(a-f), NIRC
- Sec. 2.78.1(B)(1-12), Revenue Regulations No. 2-98
- RA 4917; RA 7641
- CIR v. CA, G.R. No. 96016, October 17, 1991, 203 SCRA 72
- CIR v. GCI Retirement, G.R. No. 95022, March 23, 1992, 207 SCRA 487

D. Rentals/Leases
- Sec. 32(A5), NIRC
- Secs. 74, 49 and 58, Revenue Regulations No. 2
- Revenue Regulations 19-86
- BIR Ruling No. 009-07

E. Passive Income
1. Interest Income; deposit substitutes
- Sec. 32(A)(4), NIRC
- Revenue Regulations No. 10-98
- RR 14-2011; RMC 77-2012; RMC 81-2012
- BDO v. Republic, G.R. No. 198756, January 13, 2015

• Exclusions:
- Sec. 32(B)(7)(a), NIRC
- CIR v. Mitsubishi Metal, G.R. No. L-54908, January 22, 1990, 181
SCRA 214
- NDC v. CIR, G.R. No. L-53961, June 30, 1987

3. Royalties
- Sec. 32(A)(6), NIRC
- CIR v. SC Johnson, G.R. No. 127105, June 25, 1999

4. Dividends
- Sec. 32(A)(7), NIRC
- Secs. 58 and 71, 250-253, Revenue Regulations No. 2
- Revenue Memorandum No. 31-90
- Sec. 73(C,D), NIRcC
- Wise v Meer, G.R. No. 48231. June 30, 1947
- CIR v. CA, G.R. No. 108576, Jan. 20, 1999

5. Annuities and Insurance Proceeds

- Sec. 32(A)(8), NIRC
- Sec. 48, Revenue Regulations No. 2
• Exclusions:
• Proceeds from Life Insurance
- Sec. 32(B)(1), NIRC
- Sec. 62, Revenue Regulations No. 2
- El Oriente Fabrica v. Posadas, G.R. No. 34774, September 21,1931 56 Phil
147
• Return of Premium Paid
- Sec. 32(B)(2), NIRC
- Sec. 48, Revenue Regulations No. 2
 • Compensation for Injuries or Sickness
- Sec. 32(B)(4), NIRC
- Sec. 63, Revenue Regulations No. 2

6. Prizes and Winnings/Awards/Rewards

- Sec. 32(A)(9), NIRC
- Sec. 282, NIRC
- Revenue Memorandum Order No. 12-93
- Revenue Regulations No. 016-10; Revenue Memorandum Order No. 046-11
- CIR v. COA, G.R. No. 101976, Jan. 29, 1993
• Exclusions:
- Sec. 24(B)(1), NIRC
Sports Competition Prizes
- Sec. 32(B)(7)(d), NIRC

7. Other Types of Passive Income

- Found Treasure
- Tax Refund
- Recovery of Bad Debt Previously Deducted; Sec. 50, Revenue Regulations
No. 2
- Damages
-BIR Ruling No. 1211-18 dated 28 September 2018
- BIR Ruling No. 26-2018 dated 18 January 2018
- Informer’s Reward
-Penid v. Virata, G.R. No. L-44004, March 25, 1983

WEEK SIX

E. Gains Derived from Dealings in Property

- Secs. 32(A)(3), 39-40, NIRC

• Capital Asset v. Ordinary Asset

- Secs. 24(D), 39, NIRC
- Secs. 132-135, Revenue Regulations No. 2
- Revenue Regulations No. 7-2003
- Tuazon vs. Lingad, G.R. No. L-24248 July 31, 1974
- Calasanz vs. CIR, G.R. No. L-26284, Oct. 9, 1986
- Ferrer vs. Collector, G.R. No. L-16021, August 31, 1962

• Treatment of Sale or Exchange of Ordinary Assets

o Treatment of Sale or Exchange of Capital Assets which are not Real Property or
Shares of Stock
- Secs. 39(A), 40, NIRC ; Net Capital Gain and Net Capital Loss; Holding Period

o Treatment of Sale or Exchange of Shares of Stock held as Capital Asset

- Sections 6 -9, Revised Corporation Code (RCC)
- RR 6-2008, April 22, 2008, as amended by RR 16-2012, RR 6-2013 and RR 20-20
• Exclusions:
Shares of Stocks Traded in PSE
- Sec. 127, NIRC

o Treatment of Sale or Exchange of Real Property held as Capital Asset

Capital Gains Tax on Presumed Gain
- Secs. 6(E), 24(A), 24(D)(1), NIRC
- Revenue Regulations No. 7-2003
- Revenue Memorandum Circular No. 035-17

▪ Foreclosure Sales of Real Property

- Revenue Memorandum Order Nos. 29-86, 16-88, 27-89 and 6-92
- Revenue Regulations No. 4-99
 Redemption period

F. Business Income/ Income from Exercise of Profession

- Secs. 32(A)(2), 27(E), NIRC
- Secs. 36-38, 43-47, Revenue Regulations No. 2
• Exclusions:
- Income Exempt Under a Treaty
- Income Derived by Governmental/Political Subdivision from Exercise of Essential
Government Function

G. Partner’s Distributive Share of the Gross Income of General Professional Partnerships

- Sec. 32(A)(11), NIRC

H. Exclusions under Special Laws

- RA 9040

III. TAXPAYERS

I. General Principles
- Sec. 23, NIRC

J. Scope of Income Taxation

- Definition of a Taxpayer (Sec. 22(N), NIRC); classification of taxpayers
- Definition of a Person (Sec. 22(A), NIRC)
- Who is a “Person liable to tax”

IV. INDIVIDUALS: CLASSIFICATION, BASES AND RATES

• Citizens
- Sec. 23(A-D), NIRC
- Secs. 1 and 2, Art. IV, 1987 Constitution

o Resident Citizens
- Sec. 23(E), NIRC

o Non-Resident Citizens
- Secs. 22(E), 23(B), NIRC

▪ Overseas Filipino Workers

- Sec. 23(C), NIRC

• Aliens

o Resident Alien
- Secs. 22(F), 24(B), NIRC
- Sec. 5, Revenue Regulations No. 2

o Non-Resident Alien

▪ Non-Resident Alien Engaged in Trade or Business

- Secs. 22(G), 25(A), NIRC
- Revenue Regulations 2-2021

▪ Non-Resident Alien Not Engaged in Trade or Business

- Secs. 25(B), NIRC

• Classifications of Individuals as to income earning

o Compensation earner
- Minimum Wage Earner (Secs. 22(H) and 24, last paragraph, NIRC)
- Coverage of exemption (RR 1-18, RR 8-2018)
- Rank and File Employee
 - Managerial/Supervisory Employee
o Self-Employed and/or Professionals (SEPs)
o Mixed income earner

A. Resident Citizens and Resident Aliens; taxation

- In General
- RR 1-2019
- RR 8-2018
- RR 11-2018
- RR 14-2018
- RR 15-2018
- RMO 23-2018
- RMC 32-2018
- RMC 50-2018
- RMC 51-2018
- Taxable Income Taxation
- Gross Income Taxation
-Qualified to Opt for 8%
-Not qualified to 8%
Regular Graduated Rate vs. 8% Option
-Compensation
-Purely Self-Employed and/or Professionals
-Mixed Income Earner

• Passive Income:

• Interest, Royalties, Prizes and Other Winnings

- Secs. 24(B)(1), 22(FF), NIRC
- Revenue Regulations No. 10-98
- Revenue Regulations No. 14-2012, November 7, 2012
- Revenue Regulations No. 1-2019
- Revenue Regulations No. 8-2018
- Revenue Regulations No. 11-2018

• Dividends
- Sec. 24(B)(2), NIRC
- Sec. 73, NIRC

• Capital Gains on Shares of Stocks

- Sec. 24(C), NIRC
- Revenue Regulation No. 6-2008, as amended by Revenue Regulation No. 1-2019, and Revenue
- Regulation No. 8-2018, and Revenue Regulation 20-2020

• Capital Gains on Real Property

- Art. 415, New Civil Code
- Sec. 24(D), NIRC
- Revenue Regulations Nos. 8-98, 13-99, as amended by 14-2000 and 6-01
- Sale of Principal Residence (Sec. 24(D), NIRC)
- Requisites for exemption (Sec. 24(D), NIRC)
- Revenue Regulation No. 8-98
- Revenue Regulation No. 13-99
- Revenue Regulation No. 14-2000
▪ Socialized Housing
– Secs. 19, 20, 32, RA 7279
- Secs. 93, 188, NIRC

B. Non-Resident Citizens (Sec. 22(E), NIRC)

- Revenue Regulation No. 1-2011

C. Non-resident Alien
• engaged in trade or business (Sec. 25(A), NIRC);
- Taxable Income Taxation
 - Gross Income Taxation
- Passive Income; Revenue Regulations 2-2021
- Capital Gains Sec. 25(3)
• not engaged in trade or business (Sec. 25(B), NIRC)
- Sec. 25(B)

E. Minimum Wage Earners (MWE)

- Secs. 22(H), 24, NIRC
- Coverage of exemption (RR 10-08, RR 8-2018)
- Soriano v. Secretary of Finance, G.R. No. 184450, January 24, 2017

F. Members of General Professional Partnership

- Sec. 26, NIRC

WEEK
SEVEN

V. TAX ON CORPORATIONS: BASES AND RATES

- Sec. 22(B), NIRC

• Partnerships (Arts. 1767-1769, New Civil Code)
- Lorenzo Ona v. CIR, G.R. No. L-19342, May 25, 1972
- Afisco Insurance Corp. v. CIR, G.R.No. 112675, Jan. 25, 1999
- CIR v. Batangas Tayabas Bus Co., 102 Phil 822
• General Professional Partnership
- Secs. 22(B), 26, 73(D), NIRC
- Tan v. Del Rosario and CIR, G.R.No. L-109289, October 3, 1994

• Co-ownership
- Art. 484, Civil Code
- Revenue Memorandum Circular No. 003-12, January 11, 2012
- Revenue Memorandum Circular No. 89-12, December 27, 2012
- Obillos v. CIR, L-68118, Oct. 29, 1985

• Joint Venture; Exempt v. Taxable

- Revenue Regulation No. 10-2012, June 1, 2012

a. Domestic Corporations
- Sections 3 and 4, Revised Corporation Code
- Revenue Regulations 5-2021

• Taxable Income
- Sec. 27(A), NIRC

• Special Corporations
• Private Educational Institutions and Non-profit Hospitals
- Sec. 27(B), NIRC
- CIR v. St. Luke’s Medical Center, Inc., G.R. Nos. 195909 and 195960, September 26,
2012)
• Government-owned and controlled corporations
- Sec. 27(C), NIRC

• Passive Income.

• Interest, Royalties
- Sec. 27(D)(1, 3), NIRC

• Dividends
- Sec. 27(4), NIRC
 • Capital Gains
- Sec. 27(D)(2, 5), NIRC

b. Resident Foreign Corporations

• Taxable Income
- Sec. 28(A), NIRC
- Secs. 22(B), (C), (D), (H), NIRC
- Title XV Revised Corporation Code
- Section 3(d), RA No. 7042 (Foreign Investments Act of 1991)
- Revenue Regulations 5-2021

• Meaning of “Engaged in Trade or Business”

- NV Reederit v. CIR, G.R. No. 46029, June 23, 1988, 162 SCRA 487
- Air Canada v CIR, G.R. No. 169507, January 11, 2016

• Special Resident Foreign Corporations

• International Carriers
-Sec. 28(A)(3), NIRC
-RA 10378, March 7, 2013
-RR 15-2013
- CIR v. British Overseas Airways Corporation, G.R. No. L-65773, April 30, 1987
- South African Airways v. CIR, G.R. No. 180356, February 16, 2010
- RR No. 15-2002, May 20, 2002

• Foreign Currency Deposit Units (FCDUs)

-Sec.28(A)(4), NIRC
-RR 10-98

• Regional or Area Headquarters (RHQ) and Regional Operating Headquarters (ROHQ)

- Sec. 22(DD), (EE), NIRC
- Sec. 28(A)(6), NIRC

• Tax Rate and Tax Base

- Sec. 28(A)(1), NIRC
- Sec. 31, NIRC

• Passive Income Sec. 28(A)(7), NIRC; Revenue Regulations 2-2021

o Interest, Yields, Royalties

- Sec. 28(A)(7)(a-b), NIRC

o FCDU Income

o Dividends
- Sec. 28(A)(7)(d), NIRC

▪ Dividends received by a domestic from a non-resident foreign corporation;

conditions for exemption

o Capital Gains from Sale of Shares

o Intercorporate Dividends
- Sec. 28(A)(7)(c), NIRC, as amended by CREATE

o MCIT (Sec. 28(A)(2), NIRC

 Subsidiary v. Branch of a Foreign Corporation
Branch Profit Remittance Tax (BPRT)
- Sec. 28(A)(5), NIRC
- Revenue Memorandum Circular 55-80
- Bank of America v. CIR, G.R. No. 103092 July 21, 1994
- Marubeni v. CIR, G.R. No. 76573 September 14, 1989
-Deutsche Bank v. CIR, G.R. No. 188550, August 19, 2013

WEEK
EIGHT

c. Non-resident Foreign Corporations

- Sec. 22(I), NIRC
- Revenue Regulations 5-2021

• Taxable Income
- Sec. 28(B)(1)

• Tax Rate and Tax Base

- Sec. 28(B)(1), NIRC

• Passive Income: Revenue Regulations 2-2021

o Interest
- Sec. 28(B)(5)(a), NIRC

o Dividends
- Sec. 28(B)(5)(b), NIRC
- CIR v. Wander Philippines, G.R. No. L-68375 April 15, 1988
- Marubeni v. Commissioner, G.R. No. 76573 September 14, 1989
- CIR v. Procter & Gamble, G.R.No. 66838, December 2, 1991
o Capital Gains
- Sec. 28(B)(5)(c), NIRC

• Special Non-Resident Foreign Corporations

- Sec. 28(B)(2),(3) and (4)
- Non-resident Cinematographic Film Owner, Lessor or Distributor
(Sec. 28(B)(2), NIRC)
- Non-resident Owner of Lessor of Vessels Chartered by Philippine Nationals (Sec. 28(B)(3),
NIRC
- Non-resident Owner or Lessor of Aircraft, Machineries and Other Equipment (Sec.
28(B)(4), NIRC

d. Minimum Corporate Income Tax (MCIT)

- Tax Rate and Base (Sec. 27(E )(1) and 28(A)(2)
- RR No. 9-98, August 25, 1998, as amended by RR 12-2007, October 10, 2007
- Carry forward Excess Minimum Tax(Sec. 27(E)(2)
- Gross Income
- Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo, G.R. No.
160756, March 9, 2010
- The Manila Banking Corporation v. CIR, G.R. No. 168118, August 28, 2006

e. Exemption from Tax on Corporations; Corporations Taxed at Preferential Rates

- Sec. 30, NIRC
- Sec. 27(B), NIRC
- RMC No. 35-2012, August 3, 2012
-
• Educational Institutions
- CIR v. CA, CTA and YMCA of the Philippines, G.R. No. 124043, October 14, 1998
- CIR v. De La Salle University, Inc., G.R. No. 196596, November 9, 2016
 • Cooperatives
-Dumaguete Cathedral Credit Cooperative (DCCCO) v. CIR, G.R. N. 182722, January
22, 2010

• Hospitals
- CIR v. St. Luke’s Medical Center, G.R. No. 195960, September 26, 2012
- Sec. 30(E) vs. Sec. 30(G), NIRC

• Others

VI. TAX ON PARTNERSHIPS

A. Taxation of Ordinary/Business Partnerships (Sec. 22(B), NIRC)

B. Taxation of General Professional Partnerships (Sec. 26, NIRC)

WEEK NINE

VII. TAX-FREE EXCHANGES AND OTHER TAX-EXEMPT TRANSACTIONS

A. In General
- Revenue Regulations No. 18-2001, Nov. 13, 2001
- Revenue Memorandum Order 32-2001, Nov. 28, 2001
- Revenue Memorandum Order (RMO) No. 17-2016
B. Merger or Consolidation
- Sec. 40(C)(2) and (6)(b), NIRC
- Sec. 75 -79 Revised Corporation Code
- CIR vs. Rufino, G.R. Nos. L-33665-68 February 27, 1987
o De Facto Merger
- Revenue Memorandum Ruling 1-2002, Apr. 25, 2002
C. Exchange of Property for Shares of Stock
- Sec. 40(C)(2), NIRC
- CIR v. Filinvest Development Corporation, G.R. No. 163653, July 19, 2011
- CIR v Co, G.R. No. 241424. February 26, 2020
- CIR v. HSBC, G.R. No. 227121. December 9, 2020

D. Other Tax-Exempt Transactions

- Deeds of Trusts
- Transfers by Mistakes
- Sec. 196, NIRC

Transfers of Rights;
Rescinded Contracts;
Equitable Mortgage
Condominium Corporations
Miscellaneous Exempt Transactions
- Sec. 24(D), NIRC
- RA 6657
- Revenue Regulations No. 7-2011, February 16, 2011
- Revenue Memorandum Circular No. 32-2012, July 16, 2012
E. Administrative Requirements
- Revenue Memorandum Order No. 32-2001, Nov. 29, 2001

VIII. COSTS; DEDUCTIONS AND EXEMPTIONS

• Return of Capital; Cost of Goods Sold

• Deductions in General
- Sec. 34, NIRC
- Secs. 119-120, Revenue Regulations No. 2
- CIR v. General Foods, G.R. No. 143672, April 24, 2003
- Commissioner v. Philippine Acetylene, G.R. No. L-22443, May 29, 1971, 39
SCRA 70

• Revenue Expenditures vs. Capital Expenditures

- Atlas Consolidated Mining & Development Corp. v. CIR, G.R. No. L-26911, Jan. 27, 1981
- Kepco Phil Corp. v. CIR, G.R. No. 179356, Dec. 14, 2009

• Kinds of Deductions
- Itemized
- Optional Standard
- Sec. 34(L), NIRC
- RR No. 16-2008
- RR No. 2-2010
- RMC No. 16-2010
- Special Deductions

• Limitations and Substantiation

- Sec. 34, NIRC
- M.E. Holding Corporation v. Court of Appeals, G.R. No. 160193, March 3, 2008, 547 SCRA
389
- CIR v. Isabela Cultural Corporation, G.R. No. 172231, Feb. 12, 2007

Allocation of income; Transfer Pricing

- Sec. 50, NIRC
- Yutivo Sons v. CIR, G.R. No. L-13203, January 28, 1961, 1 SCRA 160
- Revenue Regulations No. 2-2013; Revenue Regulations No. 19-2020

• Additional Requirements for deductibility of certain payments; withholding

- Sec.34(J), NIRC
- RMO 38-83
- RR 12-2013

• Allowable Deductions
- Secs. 24(A), 25(A), 26, 27(A,B,C), 28(A)(1), 45, NIRC

o Ordinary/Necessary Business Expenses

- Sec. 34(A), NIRC
- Secs. 67-70, 74-75, Revenue Regulations No. 2
- Atlas Consolidated Mining & Development Corp. v. CIR (supra)

o Interest Expense
- Sections 34(B), 36(B), NIRC
- Revenue Regulations No. 13-00
- Paper Industries v. CA, G.R. Nos. 106494-50, December 1, 1995, 250 SCRA
434

o Taxes
- Secs. 34(2)(C), NIRC; Tax Benefit Rule
- Secs. 80-83, 84 par. 1, 85, 92, Revenue Regulations No. 2
- CIR v. Lednicky, G.R. No. L-18169, July 31, 1964
- Mercury Drug Corporation v. CIR, G.R. No. 164050, July 20, 2011, 654 SCRA 124

o Losses
- Sec. 34(D), NIRC
- Secs. 93-101, Revenue Regulations No. 2
- Tambunting v. CIR, G.R. No.173373, July 29, 2013
- Fernandez Hermanos v. CIR, G.R. No. L-21551, L-21557, L-24972, L-24978,
September 30, 1969, 29 SCRA 552
- China Bank v. CA, G.R. No. 125508, July 19, 2000, 336 SCRA 178
 - Paper Industries v. CA, G.R. Nos. 106494-50, December 1, 1995, 250 SCRA
434

▪ Losses between Related Taxpayers

- Sec. 36(B), NIRC

▪ Losses on Wash Sales

- Section 34(D)(5), NIRC
- Sec. 38, Revenue Regulations No. 2

▪ Loss from Short Sale of Property; Failure to Exercise Option

-Sec. 39(F), NIRC
Wagering Loss
- Sec. 34(D)(6), NIRC

▪ Abandonment Loss
- Sec. 34(D)(7), NIRC

▪ NOLCO
- Sec. 34(D)(3)
- RR No. 14-01
- Section 4, RA No. 11469 (Bayanihan 1); RR 25-2020

▪ Loss Due to Voluntary Removal of Buildings, Scrapping of Old Machinery, etc.

- Sec. 97, RR No. 2

▪ Obsolescence
- Sec. 110, RR No. 2

WEEK TEN

o Bad Debts
- Sec. 34 (E), NIRC
- Revenue Regulations Nos. 5-99 and 25-02; Tax Benefit Rule
- Secs. 102-104, Revenue Regulations No. 2
- Collector v. Goodrich, G.R. No. L-22265, December 22, 1967, 21 SCRA 1336
- Fernandez Hermanos v. CIR (supra)

o Cost Recovery, Depreciation and Amortization

- Sec. 34(F), NIRC
- Secs. 105-115, Revenue Regulations No. 2
- Revenue Regulations 19-86
- Revenue Regulations 12-2012; Bulletin “F”; Annex “A”, RR No. 19-86;
RMC 2-2013
- RMC 70-2010
- Basilan Estates v. CIR, G.R. No. L-22492, September 5, 1967, 21 SCRA 17
- Commissioner of Internal Revenue v. Priscila Estate, Inc. Et. Al., L-18282, May 29, 1964

o Depletion
- Sec. 34(G), NIRC
- Revenue Regulations No. 5-76
- Consolidated Mines v. CTA, G.R. Nos. L-18843 & 18844, 58 SCRA 618

o R&D Expenses
- Sec. 34(I), NIRC

o Charitable and Other Contributions

- Sec. 34(H), NIRC
- Revenue Regulations No. 13-9820 (April 11, 2008)
- RMC No. 88-07
- E.O. 7
 - BIR-NEDA Regulations Nos. 1-81 and 1-82

o Contribution to a Pension Trust

- Sec. 34(J), NIRC
- Sec. 118, Revenue Regulations No. 2
- RMC No. 39-2014
- Non-Deductible Expenses/Losses
- Sec. 36, NIRC
- Secs. 119-122, Revenue Regulations No. 2
- Atlas Consolidated v. CIR, G.R. No. L-26911, Jan. 27, 1981
- Gancayco v. Collector, G.R. No. L-13325, April 20, 1961, 1 SCRA 980

o Illegal Expenses
- Sec. 34(1), NIRC
- Callanoc v. Collector, 3 SCRA 517
- 3M Philippines v. CIR, G.R. No. 82833, Sept. 26, 1988

o Special Deductions
- Sec. 37, NIRC

o Optional Standard Deductions

- Sec. 34(L), NIRC
- RR No. 2-2014
- RR No. 2-2010

o Deductions under Special Laws

- Senior Citizen’s Discount
- RR 7-10, as amended by RR 8-10 and RR 11-15, implementing RA 9994
- Sales Discounts for Persons with Disability
- RR 1-09; RR 5-17, as amended by RR 9-19; RMC 38-12

X. TAX ON ESTATES AND TRUSTS

A. Application of Tax
- Articles 1440-1457, New Civil Code
- Secs. 60-66, NIRC
- Secs. 207-213, NIRC
- RMC No. 39-2014, May 12, 2014
- Secs. 207-213, Revenue Regulations No. 2
- CIR v. CA, G.R. No. 95022, March 23, 1992
B. Exception (Sec. 60(B), NIRC)
C. Computation and Payment
- Sec. 60(C), NIRC
- In General (Sec. 60(C)(1), NIRC)
- Consolidation of income of two or more trusts (Sec. 60(C )(2), NIRC)
- Taxable income (Sec. 61, NIRC)
- Exemption allowed to Estates and Trusts (Sec. 62, NIRC)
- Revocable trusts (Sec. 63, NIRC)
- Income for benefit of grantor (Sec. 64(A), NIRC)
- Meaning of “in the discretion of the grantor” (Sec. 64(B), NIRC)

- CIR v. Visayas Electric, 23 SCRA 715

- CIR v. CA, GCL Retirement Plan 207 SCRA 487

WEEK
ELEVEN

XI. ACCOUNTING PERIODS AND METHODS

 Calendar Year v. Fiscal Year
- Secs. 22, 43-47, NIRC
- Secs. 51-53, 166-172, Revenue Regulations No. 2
Recognition of Income
Long Term Contracts
- Sec. 48, NIRC
Installment Sales
- Secs. 49-50, NIRC
Termination of Leasehold
- Sec. 49, NIRC
- Consolidated Mines v. CTA, GR L-18844, Aug. 29, 1974
- Filipinas Synthetic v. CA, 316 SCRA 480

Recording of Income and Expenses/Keeping of Books

- Secs. 175-179, Revenue Regulations No. 2
- Revenue Regulations Nos. 17-13, 4-14
- CIR v. Wyeth Suaco, 202 SCRA 135
- Consolidated Mines v. CTA, G.R. No. 18843, August 29, 1974; 58 SCRA 618
- CIR v. Isabela Cultural Corp., G.R. No. 172231, Feb. 12, 2007
- CIR v. Lancaster, G.R. No. 183408, July 12, 2017

XII. WITHHOLDING OF TAXES

Withholding tax on compensation; creditable withholding tax; final withholding tax

- Secs. 57-58, 78-83, NIRC

- Revenue Regulations Nos. 2-98, as amended
- RR 11-2018, RR 14-2018, RR 1-2019, and RR 7-2019
- BDO v Republic, GR No. 198756, Aug 16, 2016
- CIR v. La Flor dela Isabela, GR No. 211289, Jan 14, 2019
- CIR v. CA, CTA & Anscor, G.R. No. 108576 January 20, 1999

XIII. RETURNS AND PAYMENT OF TAXES

a. In General
- NIRC, secs. 24-28, 33, 51-52, 55, 74-77
- RMC 31-2019
b. Individuals
c. Corporations
- CIR v. TMX Sales, G.R. No. 83736 January 15, 1992
- San Carlos Milling v. CIR, G.R. No. 103379 November 23, 1993

WEEK
TWELVE

XIV. Incentives Rationalization under CREATE

Title XIII NIRC
- Section 297- 311, NIRC as amended by CREATE
a. Expanded function of the FIRB
b. Qualified Projects or Activities for Tax Incentives
i. Qualification of registered business enterprises for incentives
c. Tax Incentives Management and Transparency
d. Transitory Provisions