2011 bar coverage for taxation
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Syllabus for Bar Exam in TaxationTRANSCRIPT
2011 BAR COVERAGE FOR TAXATION
I) General Principles of Taxation
A) Definition and Concept of Taxation (To be Compared to Taxes)
Taxation
Taxes
Nature
Power by which the sovereign raises revenue to defray the necessary expenses of the government from among those who in some measure are privileged to enjoy its benefits and must bear its burden.
Enforced proportional contribution from properties and persons levied by the State by virtue of its sovereignty for the support of government and for public needs.
Characteristics
1. Unlimited
2. Far-reaching
3. Plenary
4. Comprehensive
5. Supreme
1. forced charge;
2. generally payable in money;
3. levied by the legislature;
4. assessed with some reasonable rule of apportionment;
5. imposed by the State within its jurisdiction;
6. levied for public purpose.
B) Power of Taxation Compared With Other Powers
1) Police Power
Taxation
Police Power
Purpose
Raise revenue
Exercise to promote public welfare through regulation
Amount of
exaction
No limit
Limited to the cost of regulation, issuance of license, or surveillance
Superiority of contracts
Contracts may be impaired
unless (a) government is
party to contract granting exemption; or (b) involves franchise
Contracts may be Impaired
2) Power of Eminent Domain
Taxation
Eminent Domain
Purpose
Raise revenue
The taking of property for public use
Compensation
Payment of taxes accrue to the general benefit of the citizens of the taxing State
Just compensation
Persons affected
Applies to all persons, property and
excises that may be subject thereto
Only particular property is
comprehended
3) Taxation vs Police Power vs Eminent Domain
Taxation
Police Power
Eminent Domain
Non-impairment of contracts:
Contracts may not be impaired
Contracts may be impaired
Contracts may be impaired
Effect of transfer:
Taxes paid become part of the public funds
No transfer but only restrain on the exercise of property rights
Property is taken by the State upon payment of just compensation
Scope:
It affects all persons, property, and excises
It affects all persons, property, privileges, and even rights
It affects only the particular property compre-hended
Basis:
Public necessity
Public necessity and right of State and of public to self-protection and self-preservation
Necessity of the public for private property
C) Purpose of Taxation
1) Revenue- to defray the expenses of the government
2) Non-revenue/special or regulatory- mitigate the evils arising from the inequalities of wealth by a progressive scheme of taxation which places the burden on those best able to pay
a. Regulation;
b. Promotion of general welfare;
c. Reduction of social inequity;
d. Encouragement of economic growth; and
e. Protectionism.
B) Principles of Sound Tax System
1) Fiscal Adequacy- sufficient to meet governmental expenditures
2) Administrative Feasibility- capable of being effectively enforced
3) Theoretical Justice- based on the taxpayers ability to pay
C) Theory and Basis of Taxation
1) Lifeblood Theory- Taxes are the lifeblood of the nation. Without revenue raised from taxation, the government will not survive, resulting in detriment to society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. (CIR vs Algue, Inc., et. al.)
2) Necessity Theory- Existence of a government is a necessity and cannot continue without any means to pay for expenses.
3) Benefits-Protection Theory (Symbiotic Relationship)- There exist reciprocal duties of protection and support between State and its inhabitants. Inhabitants pay taxes and in return receive benefits and protection from the State.
4) Jurisdiction over subject and objects
D) Doctrines in Taxation
1) Prospectivity of tax laws
2) Imprescriptibility
3) Double taxation- Taxing the same subject twice when it should be taxed only once. Also known as duplicate taxation
a. Strict sense-
Direct duplicate taxation/obnoxious DT is the objectionable or prohibited sense. REASON: This constitutes a violation of substantive due process. The same property is taxed twice when it should be taxed only once.
Requisites:
a. the same property is taxed twice when it should only be taxed once;
b. both taxes are imposed on the same property or subject matter for the same purpose;
c. imposed by the same taxing authority;
d. within the same jurisdiction
e. during the same taxing period; and
f. covering the same kind or character of tax.
b. Broad sense
Indirect double taxation: Not legally objectionable. The absence of one or more of the foregoing requisites of obnoxious DT makes the DT indirect.
c. Constitutionality of double taxation
Double taxation per se is not prohibited in the Philippines. There is no constitutional prohibition against double taxation in the Philippines. It is something not favored but permissible (Pepsi Cola Bottling Co. v. City of Butuan, 1968).
d. Modes of eliminating double taxation
(1) Tax deductions- Example: Vanishing deductions in transfer taxes.
(2) Tax credits- An amount allowed as a reduction of the Phil. Income tax on account of income tax(es) paid or incurred to foreign countries. It is given to a taxpayer in order to provide a relief from too onerous a burden of taxation in case where the same income is subject to a foreign and Phil. Income tax. This may be claimed by (1) citizens of the Philippines and (2) domestic corporations.
(3) Exemptions
(4) Treaties with other states
(a) EXEMPTION METHOD the income or capital which is taxable in the state of source or situs is exempted in the state of residence, although in some instances it may taken into account in determining the rate of tax applicable to the taxpayers remaining income or capital (ex. Tax Sparing Credit scheme)
(b) CREDIT METHOD the tax paid in the state of source is credited against the tax levied in the state of residence.
(5) Principle of reciprocity
4) Escape from taxation
1. Shifting S
2. Capitalization C
3. Transformation T
4. Avoidance A
5. Exemption E
6. Evasion-unlawful E
a. Shifting of tax burden- Process by which tax burden is transferred from statutory taxpayer to another without violating the law.
(1) Ways of shifting the tax burden
(2) Taxes that can be shifted
(3) Meaning of impact and incidence of taxation
(a) Impact of taxation point on which tax is originally imposed.
(b) Incidents of taxation point on which the tax burden finally rests or settles down.
(4) Tax avoidance vs tax evasion
(a) Tax avoidance- exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce tax liability.
(b) Tax evasion- Used by the taxpayer through illegal or fraudulent means to defeat or lessen the payment of the tax.
5) Exemption from taxation
a. Meaning- A grant of immunity, express or implied, to particular persons or corporations from the obligation to pay taxes
b. Nature of tax exemption
(1) Exemptions from taxation are highly disfavored in law.
(2) Taxation is the rule, tax exemption is the exception. He who claims an exemption must be able to justify his claim by the clearest grant of organic or statute law. If ambiguous, there is no tax exemption.
(3) He who claims an exemption must justify that the legislature intended to exempt him by words too plain to be mistaken.
(4) He who claims exemption should convincingly prove that he is exempted.
(5) Tax exemption must be strictly construed.
(6) Tax exemptions are not presumed.
(7) Constitutional grants of tax exemptions are self-executing.
(8) Tax exemptions are personal.
(9) Deductions for income tax purposes partake of the nature of tax exemptions; hence, they are also to be strictly construed against the taxpayer.
c. Kinds of tax exemption
(1) Express- Expressly granted by organic or statute law
(2) Implied- When particular persons, properties, or excises are deemed exempt as they fall outside the scope of the taxing provision itself.
(3) Contractual- When the exemption is granted through a contract mutually entered into between the taxpayer and the State
d. Rationale/grounds for exemption
(1) Constitutional: Immunities from taxation which originate from the constitution
(2) Statutory: Those which emanate from legislation
e. Revocation of tax exemption-
(a) When government is party to contract granting exemption, it cannot be withdrawn without violating the non-impairment clause.
(b) When exemption generally granted by law, withdrawal does not violate.
(c) When exemption granted under a franchise may be revoked. Constitution provides that franchise is subject to amendment, alteration, or repeal by Congress.
6) Compensation and Set-off- General Rule
Taxes cannot be set off as the government and the taxpayer are not mutually creditors and debtors of each other. Taxes are not in the nature of contracts but grow out of the duty to, and are positive acts of the government to the making and enforcing of which the personal consent of the taxpayer is not required [Francia v. IAC, 162 SCRA 622].
Debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity. Philex Mining Corp. v. CIR, 294 SCRA 687 [1998]
Exceptions:
Claim against the government has already been appropriated by law and both claims have already become overdue, demandable and fully liquidated. Domingo v. Garlitos [8 SCRA 443] [in re: claim for payment of unpaid services of a government employee vis--vis the estate tax from his estate].
When the taxpayer has claims against the government which are evidenced by certificates of indebtedness. Republic v. Ericta, [173 SCRA 623]
Requisites of Compensation in taxation
1. That the tax assessed and the claim against the government be fully liquidated.
2. That the tax assessed and the claim against the government is due and demandable, and
3. That the government had already appropriated funds for the payment of the claim.
7) Compromise- See Tax Remedies
8) Tax amnesty
a. Definition-
(1) general or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law
(2) partakes of an absolute forgiveness or waiver of the Government of its right to collect
(3) to give tax evaders, who wish to relent & are willing to reform a chance to do so
b. Distinguished from tax exemption
(1) like tax exemption, never favored nor presumed
(2) construed strictly against the taxpayer (must show complete compliance with the law)
c. Rules on Tax Amnesty
(1) Government not estopped from questioning the tax liability even if amnesty tax payments were already received
(a) Reason: Erroneous application and enforcement of the law by public officers do not block subsequent correct application of the statute. The government is never estopped by mistakes or errors of its agents. Basis: Lifeblood Theory
(2) Defense of Tax amnesty, like insanity, is a personal defense.
(a) Reason: Relates to the circumstances of a particular accused and not the character of the acts charged in the information
2) Construction and Interpretation of:
a. Tax laws
(1) General Rule
(2) Exception
b. Tax exemption and exclusion
(1) General Rule
(2) Exception
c. Tax rulxes and regulations
(1) General rule only
d. Penal provisions of tax laws
e. Non-retroactive application to taxpayers
(1) Exceptions
B) Scope and Limitation of Taxation
1) Inherent Limitations
a. Public Purpose- Test in Determining Public Purpose
(1) whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the state, as a government, to provide
(2) whether the proceeds of the tax will directly promote the welfare of the community in equal measure
b. Inherently Legislative (Non-delegability of the taxing power)
(1) General Rule- The power of taxation is peculiarly and exclusively legislative. Consequently, the taxing power as a general rule may not be delegated. These include:
(a) selection of property to be taxed;
(b) determination of the purposes for which taxes shall be levied;
(c) fixing of the rate of taxation;
(d) rules of taxation in general
(2) Exceptions
(a) Delegation to local governments- Power of local government units to tax subject to limitations as may be provided by Local Government Code (Art. X, Sec. 5, 1987 Constitution).
(b) Delegation to the President- Authority of the President to fix tariff rates, import and export quotas (Art. VI, Sec. 28[2], 1987 Constitution)
(c) Delegation to administrative agencies
c. Territorial
(1) Situs of Taxation
(a) Meaning- an inherent mandate that taxation shall only be exercised on persons, properties and excises within the territory of the taxing power
(b) Situs of Income Tax- residence/citizenship of the taxpayer or source of income whether:
1. From within the Philippines
2. From without the Philippines
3. Income partly within and partly without the Philippines
(c) Situs of Property Taxes
1. Taxes on Real Property- where property is located
2. Taxes on Personal Property- tangible; where it is physically located; intangible: subject to Sec. 104 of CTRP and principle of mobilia sequuntur personam
(d) Situs of Excise Tax
1. Estate Tax-
2. Donors Tax
(e) Situs of Business Tax
1. Sale of Real Property
2. Sale of Personal Property
3. VAT
d. International Comity
e. Exemption of Government Entities, Agencies, and Instrumentalities- As a matter of public policy, property of the State or any of its political subdivisions devoted to government uses and purposes are generally exempt from taxation
2) Constitutional Limitations
a. Provisions Directly Affecting Taxation
(1) Prohibition against imprisonment for non-payment of poll tax.
(2) Uniformity and equality of taxation
(a) Uniform: all articles or properties of the same class taxed at same rate.
(b) Equity: apportionment must be more or less just in the light of taxpayers ability to shoulder tax burden.
(3) Grant by Congress of authority to the President to impose tariff rates-
(a) delegated by Congress
(b) through a law
(c) subject to Congressional limits and restrictions
(d) within the framework of national development program
(4) Prohibition against taxation of religious, charitable entities, and educational entities. Charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques and non-profit cemeteries and all lands, buildings and improvements ACTUALLY, DIRECTLY and EXCLUSIVELY USED for charitable, religious and educational purposes shall be exempt from taxation
(a) Pertains only to real estate tax.
(b) Test of exemption: actual use of the property, not ownership
(c) Use of word exclusively means primarily rather than solely.
(d) Exemption extends to property incidental to or reasonably necessary for the accomplishment of the purposes mentioned.
(5) Prohibition against taxation of non-stock, non-profit institutions- Refers to tax exemptions of revenues and assets used ACTUALLY, DIRECTLY AND EXCLUSIVELY for educational purposes.
1. Exemption covers income, property, donors tax, and customs duties (To be distinguished from Religious, charitable institutions which pertains only to property tax)
2. Revenue must both be (a) derived from an activity in pursuance of educational purpose; and (b) proceeds must be used for the same purpose (ex. Hospital adjunct to medical school tax exempt) (ex. Interest income not exempt).
3. Income exempt provided it is used for maintenance or improvement of institution.
4. To be distinguished from tax treatment of (a) proprietary educational institutions (10% Preferential Tax); and (b) government educational institutions (exempt, ex. UP)
(6) Majority vote of Congress for grant of tax exemption
Relative majority (majority of quorum) is sufficient to withdraw exemption
(7) Prohibition on use of tax levied for special purpose
special fund for said purpose, balance goes to general funds
(8) Presidents veto power on appropriation, revenue, tariff bills.
(9) Non-impairment of jurisdiction of the Supreme Court
(10) Grant of power to the local government units to create its own sources of revenue
(11) Flexible tariff clause
(12) Exemption from real property taxes
(13) No appropriation or use of public money for religious purposes
Exception: If priest is assigned to armed forces, penal institutions, government orphanage or leprosarium.
b. Provisions Indirectly Affecting Taxation
(1) Due process- The imposition of the tax must not be done in an arbitrary, despotic, capricious, or whimsical manner.
(2) Equal protection- Requisites: (a) Must not be arbitrary, (b)Must be based upon substantial distinctions, (c) Must be germane to the purposes of law, (d) Must not be limited to existing conditions only; and (e)Must apply equally to all members of a class.
(3) Religious freedom
(a) Activities simply and purely for propagation of faith are exempt (e.g. sale of bibles and religious articles by non-stock, non-profit organization at minimal profit).
(b) Tax is unconstitutional if it operates as a prior restraint on exercise of religion
(c) Income even of religious organizations from any activity conducted for profit or from any of their property, real or personal, regardless of disposition of such income, is taxable.
(4) Non-impairment of obligations of contracts- Cases:
(a) When government is party to contract granting exemption, it cannot be withdrawn without violating the non-impairment clause.
(b) When exemption generally granted by law, withdrawal does not violate.
(c) When exemption granted under a franchise may be revoked. Constitution provides that franchise is subject to amendment, alteration, or repeal by Congress.
A) Stages of Taxation
1) Levy
Note: To be compared with Levy as a remedy of taxation
a. Levy (as a tax remedy of the government)- The seizure of real property of the taxpayer and interests or rights to such property for the satisfaction of taxes due from the delinquent taxpayer to enforce the payment thereof. The property may be offered in a public sale, if after seizure, the taxes are not voluntarily paid.
2) Assessment and Collection
3) Payment
4) Refund
B) Definition, Nature, and Characteristics of Taxes- See Taxation
C) Requisites of a valid tax
D) Tax as distinguished from other forms of exactions
1) Tariff
2) Toll
Kind of
Demand
Demand of
Sovereignty
Demand of
ownership
Purpose
Support of government
Collection for the use of property
Amount
No limit depends
on need of the
government
Fair return of the
cost of the property or improvement
3) License fee
Tax
License Fee
Source
Exercise of Taxing power
Emanate from the police power of the State
Purpose
Raise revenue
Regulation
Object
Persons, property and
Privilege
Right to exercise a privilege
Amount
No limit
Only necessary to carry out regulation
4) Special assessment
Tax
Special Assessment
Imposed on
Imposed on persons, properties, etc.
Only on land
Why
imposed
Regardless of
public
improvement
Public improvement
that benefits the land
Purpose
Support of
government
Contribution to cost
of public
improvement
When
Imposed
Regular exaction
Exceptional as to
time and locality
Basis
Necessity
Benefits obtained
5) Debt
Tax
Debt
Source
Law; legal
Obligation
Based on contract
Nature
Personal
Assignable
Transmissibility
Generally not
subject to
compensation/setoff
May be the subject of compensation/setoff
Sanction
Imprisonment is
sanction for nonpayment
No imprisonment for non-payment
E) Kinds of Taxes
1) As to object
a. Personal, capitation, or poll tax
(1) fixed amount
(2) individuals residing within specified territory
(3) without regard to their property, occupation or business
Ex. Community Tax (Cedula)
b. Property tax
(1) imposed on property, real or personal
(2) in proportion to its value or other reasonable method of apportionment
Ex. Real estate tax
c. Privilege tax
(1) imposed upon performance of an act, the
(2) enjoyment of a privilege or the engaging in an occupation, profession or business
Ex. Income tax, VAT, estate tax, donors tax
2) As to burden or incidence
a. Direct- the tax is imposed on the person who also bears the burden thereof
Ex. Income tax, community tax, estate tax
b. Indirect- imposed on the taxpayer who shifts the burden of the tax to another
Ex. VAT, specific tax, percentage tax, customs duties
3) As to tax rates
a. Specific- tax imposed and based on a physical unit of measurement, as by head, number, weight, length or volume
Ex. Tax on distilled spirits, fermented liquors, cigars
b. Ad valorem- tax of a fixed proportion of the value of property with respect to which the tax is assessed; requires intervention of assessor.
Ex. Real estate tax, excise tax on cars, nonessential goods
c. Mixed
4) As to purposes
a. General or fiscal- imposed for the general purpose of supporting the government
Ex. Income tax, percentage tax
b. Special, regulatory, or sumptuary- imposed for a special purpose, to achieve some social or economic objectives
Ex. Protective tariffs or customs duties on imported goods intended to protect local industries
5) As to scope or authority to impose
a. National imposed by the national government
Ex. National internal revenue taxes, custom duties, internal revenue taxes
b. Local imposed by the municipal corporations or local governments
Ex. Real estate tax, occupation tax, real property tax, municipal tax
6) As to graduation
a. Progressive- tax rate increases as the tax base or bracket increases
Ex. Income tax, estate tax, donors tax
b. Regressive- tax rate decreases as the tax base increases
In other countries, this tax is used to stimulate consumer spending wherein less tax is imposed for increased spending.
c. Proportionate- based on a fixed percentage of the amount of the property, income or other basis to be taxed
Ex. Real estate tax, VAT, percentage tax
II) National Internal Revenue Code of 1997 as amended (NIRC)
A) Income Taxation
1) Income Tax Systems
(a) Global Tax System- The global system is one where the tax treatment views indifferently the tax base and generally treats in common all categories of taxable income of the taxpayer.
(b) Schedular Tax System- The scheduler system is one where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer.
(c) Semi-schedular or semi-global tax system- The approach used in the Philippines is partly schedular, and partly global. The schedular approach is used in taxation of individuals, while the global approach is used in the taxation of corporations.
Schedular
Global
Tax Rate
different tax rates
single tax rate
Categories
different categories of taxable income
no need for classification as all taxpayers are subjected to a single tax rate
2) Features of the Philippine Income Tax Law
(a) Direct tax
(b) Progressive
(c) Comprehensive
(d) Semi-schedular or semi-global tax system
3) Criteria in Imposing Philippine Income Tax
(a) Citizenship Principle
(b) Residence Principle
(c) Source Principle- The term source of income is not a place but the property, activity, or services that produces the income. [Commissioner v. BOAC].
4) Types of Philippine Income Tax
5) Taxable Period
(a) Calendar Period- January 1 to December 31
(b) Fiscal Period- an accounting period of twelve (12) months ending on the last day of any month other than December.
(c) Short Period
6) Kinds of Taxpayers
(a) Individual Taxpayers
(1) Citizens
(a) Resident citizens
(b) Non-resident citizens- Citizen of the Philippines who:
1. Establishes the fact of his physical presence abroad with a definite intention to reside therein
2. Leaves the Philippines during the taxable year to reside abroad, as immigrant or for employment on a permanent basis
3. Works & derives income from abroad & whose employment requires him to be physically present abroad most of the time (i.e. not less than 183 days) during the taxable year
4. Previously considered as nonresident citizen & arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines
(2) Aliens
(a) Resident aliens- individuals whose residence is within the Philippines and who is not a citizen thereof.
(b) Non-resident aliens
a. Engaged in trade or business- Those engaged in trade or business in the Philippines who come and stay in the Philippines for an aggregate period of more than 180 days during any calendar year
b. Not engaged in trade or business- Those not engaged in trade or business in the Philippines, which include nonresident aliens whose stay in the Philippines is 180 days or less.
c. Aliens employed by regional or area headquarters and regional operating headquarters of multinational companies in the Philippines
d. Aliens employed by offshore banking units
e. Aliens employed by petroleum contractors and subcontractors
(3) Special Class of Individual Employees
(a) Minimum wage earner
(b) Corporations
(1) Domestic corporations- is created or organized in the Philippines or under its laws
(2) Foreign corporations
(a) Resident foreign corporations- foreign corp. engaged in trade or business within the Philippines
(b) Non-resident foreign corporations- foreign corp. not engaged in trade or
business within the Philippines
(c) Partnerships
(1) General Professional Partnerships- Established solely for purpose of exercising common profession and not part of income derived from engaging in trade or business.
(a) As an entity, it is not subject to income tax.
(b) Partners are liable for income tax on their distributive share (computed by dividing net income of GPP).
(c) Each partner shall report his distributive share as part of his gross income in the computation of his individual Income Tax.
(2) Taxable/Business/Ordinary Partnership- All other partnerships no matter how created or organized. Includes unregistered joint ventures and business partnerships.
(a) Taxable as an entity ordinary corporate income tax.
(b) Joint ventures are not taxable as corporations when its purpose if a) undertaking construction projects; b) engaged in petroleum, coal and other energy operation under a service contract with the government.
(c) Partners are considered stockholders; therefore, their distributive share is taxed as dividends
Taxability of:
GPP
Ordinary Partnership
Partnership
Exempt
Taxable (Corporate income tax
Partners
Taxable (Individual Income tax)
Taxable (Dividends)
(d) Estates and Trusts
(1) Estate: property, rights and obligations of a person which are not extinguished by his death and those that accrues thereto; taxed in the same way as an individual provided it is irrevocable and earns income; what is taxed is not the property that constitutes the trust (this was already subject to donors tax) but the income of such property.
(2) Trust: arrangement created by agreement under which title to property is passed to another for conservation or investment with the income and the corpus/principal distributed in accordance with the directions of the creator; to be taxable as a separate entity, grantor must have absolutely and irrevocably given up control and benefit over the trust.
(e) Co-ownerships
7) Income Taxation
(a) Definition- defined as a tax on all yearly profits arising from property, professions, trades or offices. A tax on the net income or the entire income realized in one taxable year.
(b) Nature
(1) Direct Tax the tax burden is borne by the income recipient upon whom the tax is imposed.
(2) Progressive Tax the tax base increases as the tax rate increases.
(3) Excise Tax (privilege tax) a tax on the right to earn income
(c) General principles
8) Income
(a) Definition- All wealth which flows to the taxpayer other than a mere return of capital
(b) Nature- It is an amount of money coming to a person/corporation within a specified time, whether as payment for services, interest or profit from investment. Unless otherwise specified, it means cash or its equivalent. Income can also be thought of as a flow of the fruits of one's labor. (Conwi v. Court of Tax Appeals)
Income includes earnings, lawfully or unlawfully acquired, without consensual recognition, express or implied, of an obligation to repay and without restriction as their disposition.
(c) When income is taxable
(a) There must be a gain or addition to net worth
(b) The gain must be realized or received, actually or constructively; recipient must have complete dominion
(c) The gain must not be excluded by law or treaty from taxation
(d) Existence of income
(1) Realization of income
(a) Tests of Realization
1. Claim of right doctrine or Doctrine of ownership, command, or control a taxable gain is conditioned upon the presence of a claim of right to the alleged gain and the absence of a definite unconditional obligation to return or repay that which would otherwise constitute a gain
2. Assignment of Income Doctrine Ex: A is entitled to his salary of P10m but assigns it to B for unknown reasons. In this case, both A and B realize income. A constructively received income (because he was able to assign thus has complete control/dominion over it) and B actually received it. The income is taxable in the hands of both A and B.
3. Doctrine of Constructive Receipt Ex: A was informed that his check dated December 16 is already available and he can get it anytime. A did not get the check until January 30. In this case, A constructively received income in December and is taxable in that taxable period.
(b) Actual vis--vis Constructive receipt
1. Principle of Constructive Receipt of Income- Income which is credited to the account of or set apart for a taxpayer and which may be drawn upon by him at any time is subject to tax for the year during which so credited or set apart, although not then actually reduced to possession. The income must be credited to the taxpayer without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made.
(2) Recognition of income
(a) Income- all wealth which flows to the taxpayer other than a mere return of capital
1. When recognized as income- The gain must be realized or received, actually or constructively; recipient must have complete dominion
a. Proceeds of embezzlement/swindling are income because embezzler/swindler already has complete dominion over them and can use such for his economic benefit.
b. Debts without any intention to pay-(as in the case of a swindler/estafa), the proceeds will be considered as income and therefore taxable in the hands of the borrower swindler.
2. When not recognized as income
a. When funds were merely entrusted/held money in trust- (with obligation to return) to taxpayer because taxpayer acquires no control and does not receive economic benefit from it.
b. When there is only an increase in the value of property- this only constitutes an unrealized increase which becomes taxable income only upon disposition and realization of gains. Same situation for stocks and stock dividends.
c. Deposit with no interest- does not produce income for the depositary; there is no flow of wealth.
d. In a debt/loan situation where there is no intention to pay because the liability that results just offsets the increase in assets of the taxpayer borrower; therefore, no increase in net worth and no income derived from the debt/loan.
e. Proceeds are merely a return of capital-. Ex. Creditor lends debtor x amount. Debtor repays x amount plus y interest. Creditor does not have income on x amount as this is merely return on capital; he has income only with respect to the amount of y interest.
(3) Methods of accounting
(a) Cash method vis--vis Accrual method
1. Cash Method- recognition of income and expense dependent on inflow or outflow of cash (meaning, you recognize the income when you actually receive the cash payment for the sale, and you recognize the expense when you actually pay cash for the expense)
2. Accrual Method- method under which income, gains and profits are included in gross income when earned whether received or not, and expenses are allowed as deductions when incurred, although not yet paid. It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income
(b) Installment payment vis--vis Deferred payment vis-vis Percentage completion (in long term contracts)
1. The term long term contract means building, installation or construction contracts covering a period in excess of one year. [Section 48, NIRC]. This provision takes into account that certain businesses, like construction, takes more than a year for a project to be completed. As such, it is not practical (from the point of view of the government) to wait until the project is finished before the income arising therefrom is actually reported and taxed. Hence, income is spread over the years where the construction is in progress, and the allocation is made on the basis of percentage of completion.
(e) Tests in determining whether income is earned for tax purposes
(1) Realization test- no taxable income until there is a separation from capital of something of exchangeable value, thereby supplying the realization or transmutation which would result in the receipt of income.
(2) Economic benefit test, Doctrine of proprietary interest- any economic benefit to the employee that increases his net worth is taxable.
(3) Severance test
9) Gross Income
(a) Definition- derived from business shall be equivalent to gross sales, less sales returns, discounts and allowances, and cost of goods sold. For taxpayers engaged in the sale of services, gross income means gross receipts less sales returns, allowances and discounts.
(b) Concept of income from whatever source derived
(c) Gross Income vis--vis Net Income vis--vis Taxable Income
Gross Income
Net Income
Taxable Income
Gross sales, LESS sales returns, discounts and allowances, and cost of goods sold.
Gross sales, LESS sales returns, discounts and allowances, cost of goods sold AND OPERATING EXPENSES
Pertinent items of gross income specified in the NIRC, less deductions and/or personal and additional exemptions, if any, authorized by such types of income by the NIRC or other special laws
(d) Classification of Income as to Source
(1) Gross income and taxable income from sources within the Philippines
(2) Gross income and taxable income from sources without the Philippines
(3) Income partly within or partly without the Philippines
(e) Sources of income subject to tax
(1) Compensation Income- derived from rendering of services under an employer-employee relationship.
(2) Fringe Benefits- Final tax imposed on the grossed-up monetary value of fringe benefit furnished/granted to the EE by the ER, whether an individual or corp. (payable by the employer)
(3) Special treatment of fringe benefits- Fringe benefit is an income of the employee subject to Fringe Benefit Tax but is payable by the Employer. Employer can deduct FBT from its taxable income
(a) Definition- 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:
1. Housing
2. expense account
3. vehicle of any kind
4. household personnel (such as maid, driver & others)
5. interest on loan at less than market rate to the extent of the difference between the market rate & actual rate granted
6. membership fees, dues & other expenses borne by the employer for the employee in social & athletic clubs or other similar organizations
7. expenses for foreign travel
8. holiday & vacation expenses
9. educational assistance to the employee or his dependents
10. life or health insurance & other non-life insurance premiums or similar amounts in excess of what the law allows
(b) Taxable and non-taxable fringe benefits
1. FB authorized & exempted from tax under special laws
2. Contributions of ER for the benefit of the employee to retirement, insurance & hospitalizations benefit plan
3. Benefits given to the rank & file employees, whether granted under a CBA or not
4. De minimis benefits
(1) Professional Income- fees derived from engaging in an endeavor requiring special training as professional as a means of livelihood (e.g. the fees of CPAs, doctors, lawyers, engineers)
(2) Income from Business- gains or profits derived from rendering services, selling merchandise, manufacturing products, farming and long term construction contracts
(3) Income from Dealings in Property
(a) Types of Properties
1. Ordinary assets
a. 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.
b. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business
c. Property used in the trade or business, of a character which is subject to the allowance for depreciation.
d. Real property used in the trade or business of the taxpayer
2. Capital assets-
a. All properties not used in trade or business are considered capital assets
b. Property held by the taxpayer, whether or not connected with his trade or business, which is not an ordinary asset
(b) Types of Gains from dealings in property
1. Ordinary income vis--vis Capital gain
a. Ordinary income or gain includes any gain from the sale or exchange of property which is not a capital asset.
b. Capital gain or income is any gain from the sale or exchange of a capital asset.
2. Actual gain vis--vis Presumed gain- to be distinguished between sale of shares of stock not listed in the stock exchange where actual gain is needed versus sale of real property held as capital asset where actual gain is not needed as the gain is only presumed.
Sale of shares of stock not listed in the stock exchange
On sale, exchange, or other disposition of real property held as a capital asset
Kind of gain
There must be an Actual Gain.
Gain is always presumed even if there is actual loss.
Sale at a loss
Sale is not taxable.
Still taxable because gain is always presumed. Gain or loss on the sale is immaterial because there is a conclusive presumption by law that the sale resulted in a gain
Basis
Selling price less cost=Net gain
(Selling price OR FMV of the stock at the time of the sale, whichever is HIGHER)
Net gain is multiplied by 5% or 10% if over 100,000
The capital gains tax is computed by multiplying 6% to the gross selling price, or the current FMV at the time of the sale, whichever is higher.
Computation of Capital Gains tax for sale, disposition of real property held as capital asset
A final tax of six percent (6%) is imposed on the gross selling price or current fair market value, whichever is higher, for every sale or exchange of real property.
Optional: If the sale is made to the government nor any of its political subdivisions or agencies or to government-owned or controlled corporations, the taxpayer has the option to choose from the final tax of six percent (6%) of gross selling price or fair market value, whichever is higher, or the schedular tax rate of 5% up to P125,000 + 32% of excess of over P500,000.
Exception: The sale or disposition of the principal residence of natural persons are exempt from capital gains tax if certain conditions are met.
3. Long term capital gain vis--vis Short term capital gain
4. Net capital gain, Net capital loss
5. Computation of the amount of gain or loss
a. Cost or basis of the property sold
b. Cost or basis of the property exchanged in corporate readjustment
[1] Merger
[2] Consolidation
[3] Transfer to a controlled corporation (tax-free
exchanges)
c. Recognition of gain or loss in exchange of property
[1] General rule
[a] Where no gain or loss shall be recognized
[2] Exceptions
[a] Meaning of merger, consolidation, control securities
[b] Transfer of a controlled corporation
6. Income tax treatment of capital loss
a. Capital loss limitation rule (applicable to both corporations and individuals)
b. Net loss carry-over rule (applicable only to individuals)
7. Dealings in real property situated in the Philippines
8. Dealings in shares of stock of Philippine corporations
a. Shares listed and traded in the stock exchange
i. Stocks not listed, or sale not effected through the stock exchange:
5% of first P100,000
10% of excess of P100,000
b. Shares not listed and traded in the stock exchange
of 1%, regardless of the resulting gain or loss
c. Initial public offering
a. 4% if 25% of stocks is offered
b. 2% if over 25% to 33%
c. 1% if over 33%
9. Sale of principal residence
a. The sale or disposition of the principal residence of natural persons are exempt from capital gains tax if certain conditions are met.
Conditions for tax exemption of gain from the sale or exchange of principal residence:
i. Proceeds are fully utilized in acquiring or constructing a new principal residence within 18 months from the date of sale or disposition;
ii. Historical cost or adjusted basis or the real property sold or disposed shall be carried over to the new principal residence built or acquired;
iii. Notice to the Commissioner of Internal Revenue shall be given within thirty (30) days from the date of sale or disposition; and
iv. If the proceeds of the sale were not fully utilized, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax
(4) Passive Investment Income
(a) Interest Income- A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements
Exception:
1. Interest income received by an individual taxpayer (except a nonresident individual) from a depository bank under the EFCDS (expanded foreign currency deposit system) shall be subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest income: now revised
2. Interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under this Subsection:
a. Exception to exception: Should the holder of the certificate pre-terminate the deposit or investment before the fifth (5th) year, a final tax shall be imposed on the entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof:
II) Four (4) years to less than five (5) years - 5%;
III) Three (3) years to less than (4) years - 12%; and
IV) Less than three (3) years - 20%
(a) Dividend Income
1. Cash dividend
2. Stock dividend
3. Property dividend
4. Liquidating dividend
(b) Royalty Income
(c) Rental Income
1. Lease of personal property
2. Lease of real property
3. Tax treatment of
a. Leasehold improvements by lessee
b. VAT added to rental/paid by the lessee
c. Advance rental/long term lease
(2) Annuities, Proceeds from life insurance or other types of insurance
(3) Prizes and awards
(4) Pensions, retirement benefit, or separation pay
(5) Income from any source whatever
(a) Forgiveness of indebtedness
(b) Recovery of accounts previously written off
(c) Receipt of tax refunds or credit
(d) Income from any source whatever
(b) Source rules in determining income from within and without
(1) Interests
(2) Dividends
(3) Services
(4) Rentals
(5) Royalties
(6) Sale of real property
(7) Sale of personal property
(8) Shares of stock of domestic corporation
(c) Situs of Income Taxation (See page 2 under Inherent Limitations, Territorial)
(d) Exclusions from Gross Income
(1) Rationale for the exclusions
(2) Taxpayers who may avail of the exclusions
(3) Exclusions distinguished from deductions and tax credit
(4) Under the Constitution
i. Income derived by the government or its political subdivisions from the exercise of any essential governmental function
(5) Under the Tax Code
(a) Proceeds of life insurance policies
(b) Return of premium paid
(c) Amounts received under life insurance, endowment or annuity contracts
(d) Value of property acquired by gift, bequest, devise or descent
(e) Amount received through accident or health insurance
(f) Income exempt under tax treaty
(g) Retirement benefits, pensions, gratuities, etc.
(h) Winnings, prizes, and awards, including those in sports competition
(6) Under a Tax Treaty
(7) Under Special Laws
(e) Deductions from Gross Income
(1) General rules
(a) Deductions must be paid or incurred in connection with the taxpayers trade, business or profession
(b) Deductions must be supported by adequate receipts or invoices (except standard deduction)
(2) Return of capital (cost of sales or services)
(a) Sale of inventory of goods by manufacturers and dealers of properties
(b) Sale of stock in trade by a real estate dealer and dealer in securities
(c) Sale of services
(3) Itemized deductions
(a) Expenses
1. Requisites for deductibility
a. Nature: Ordinary and necessary
b. Paid and incurred during taxable year
2. Salaries, wages and other forms of compensation for personal services actually rendered, including the grossed-up monetary value of the fringe benefit subjected to fringe benefit tax which tax should have been paid
3. Traveling/Transportation expenses
4. Cost of materials
5. Rentals and/or other payments for use or possession of property
6. Repairs and maintenance
7. Expenses under lease agreements
8. Expenses for professionals
9. Entertainment expenses
10. Political campaign expenses
11. Training expenses
(b) Interest
1. Requisites for deductibility
2. Non-deductible interest expense
3. Interest subject to special rules
a. interest paid in advance
b. Interest periodically amortized
c. Interest expense incurred to acquire property for use in trade/business/profession
(c) Taxes
1. Requisites for deductibility
2. Non-deductible taxes
3. Treatments of surcharges/interests/fines for delinquency
4. Treatment of special assessment
5. Tax credit vis--vis deduction
(d) Losses
1. Requisites for deductibility
2. Other types of losses
a. Capital losses
b. Securities becoming worthless
c. Losses on wash sales of stocks or securities
d. Wagering losses
e. NOLCO
(e) Bad debts
1. Requisites for deductibility
(f) Depreciation
1. Requisites for deductibility
2. Methods of computing depreciation allowance
a. Straight-line method
b. Declining-balance method
c. Sum-of-the-years-digit method
(g) Charitable and other contributions
1. Requisites for deductibility
2. Amount that may be deducted
(h) Contributions to pension trusts
1. Requisites for deductibility
(4) Optional standard deduction
(a) Individuals, except non-resident aliens
(b) Corporations, except non-resident foreign corporations
(5) Personal and additional exemption (Republic Act 9504 Minimum Wage Earner Law)
(a) Basic personal exemptions
(b) Additional exemptions for taxpayer with dependents
(c) Status-at-the-end-of-the-year rule
(6) Items not deductible
(a) General rules
(b) Personal, living or family expenses
(c) Amount paid for new buildings or for permanent improvements (capital expenditures)
(d) Amount expended in restoring property (major repairs)
(e) Premiums paid on life insurance policy covering life or any other officer or employee financially interested
(f) Interest expense, bad debts, and losses from sales of property between related parties
(g) Losses from sales or exchange or property
(h) Non-deductible interest
(i) Non deductible taxes
(j) Non-deductible losses
(k) Losses from wash sales of stock or securities
(f) Exempt Corporations
2) Taxation of Resident Citizens, Non-resident Citizens, and Resident Aliens
(a) General rule: Resident citizens Taxable on income from all sources within and without the Philippines
(b) Taxation on Compensation Income
(1) Inclusions
(a) Monetary compensation
1. Regular salary/wage
2. Separation pay/retirement benefit not otherwise exempt
3. Bonuses, 13th month pay, and other benefits not exempt
4. Directors fees
(b) Non-monetary compensation
1. Fringe benefit not subject tax
(2) Exclusions
(a) Fringe benefit subject to tax
(b) De minimis benefits
(c) 13th month pay and other benefits and payments specifically excluded from taxable compensation income
(3) Deductions
(a) Personal exemptions and additional exemptions
(b) Health and hospitalization insurance
(c) Taxation of compensation income of a minimum wage earner
1. Definition of Statutory Minimum Wage
2. Definition of Minimum Wage Earner
i. Income also subject to tax exemption: holiday pay, overtime pay, night shift differential, and hazard pay
(c) Taxation of Business Income/Income from Practice of Profession
(d) Taxation of Passive Income
(1) Passive income subject to final tax
(a) Interest income
(b) Royalties
(c) Dividends from domestic corporation
(d) Prizes and other winnings
(2) Passive income not subject to final tax
(e) Taxation of capital gains
(1) Income from sale of shares of stock of a Philippine corporation
(a) Shares traded and listed in the stock exchange
(b) Shares not listed and traded in the stock exchange
(2) Income from the sale of real property situated in the Philippines
(3) Income from the sale, exchange, or other disposition of other capital assets
3) Taxation of Non-resident Aliens Engaged in Trade or Business
(a) General rules
(b) Cash and/or property dividends
(c) Capital gains
4) Exclude Non-resident Aliens Not Engaged in Trade or Business
5) Individual Taxpayers Exempt from Income Tax
(a) Senior citizens
(b) Exemptions granted under international agreements
6) Taxation of Domestic Corporations
(a) Tax payable
(1) Regular tax
(2) Minimum corporate income tax (MCIT)
(a) Imposition of MCIT
(b) Carry forward of excess minimum tax
(c) Relief from the MCIT under certain conditions
(d) Corporations exempt from the MCIT
i. Applicability of the MCIT where a corporation is governed both under the regular tax system and a special income tax system
(b) Allowable deductions
(1) Itemized deductions
(2) Optional standard deduction
(c) Taxation of Passive Income
(1) Passive income subject to tax
(a) Interest from deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties
(b) Capital gains from the sale of shares of stock not traded in the stock exchange
(c) Income derived under the expanded foreign currency deposit system
(d) Intercorporate dividends
(e) Capital gains realized from the sale, exchange, or disposition of lands and/or buildings
(2) Passive income not subject to tax
(d) Taxation of Capital Gains
(1) Income from sale of shares of stock
(2) Income from the sale of real property situated in the Philippine
(3) Income from the sale, exchange, or other disposition of other capital assets
(e) Tax on proprietary educational institutions and hospitals
(f) Tax on government-owned or controlled corporations, agencies or instrumentalities
7) Taxation of Resident Foreign Corporations
(a) General rule
(b) With respect to their income from sources within the Philippines
(c) Minimum corporate income tax
(d) Tax on certain income
(1) Interest from deposits and yield or any other monetary benefit from deposit substitutes, trust funds and similar arrangements and royalties
(2) Income derived under the expanded foreign currency deposit system
(3) Capital gain from sale of shares of stock not traded in the stock exchange
(4) Intercorporate dividends
(e) Exclude:
(1) International carrier
(2) Offshore banking units
(3) Branch profits remittances
(4) Regional or area headquarters and Regional operating headquarters of multinational companies
8) Taxation of Non-resident Foreign Corporations
(a) General rule
(b) Tax on certain income
(1) Interest on foreign loans
(2) Intercorporate dividends
(3) Capital gains from sale of shares of stock not traded in the stock exchange
(c) Exclude:
(1) (1)Non-resident cinematographic film owner, lessor or distributor
(2) Non-resident owner or lessor of vessels chartered by Philippine nationals
(3) Non-resident owner or lessor of aircraft machineries and other equipment
9) Improperly Accumulated Earnings of Corporations
10) Exemption from tax on corporations
11) Taxation of Partnerships
12) Taxation of General Professional Partnerships
13) Taxation on Estates and Trusts
(a) Application
(b) Exception
(c) Determination of tax
(1) Consolidation of income of two or more trusts
(2) Taxable income
(3) Revocable trusts
(4) Income for benefit of grantor
(5) Meaning of in the discretion of the grantor
14) Withholding tax
(a) Concept
(b) Kinds
(1) Withholding of final tax o certain incomes
(2) Withholding of creditable tax at source
(c) Withholding on wages
(1) Requirement for withholding
(2) Tax paid by recipient
(3) Refunds or credits
(4) Year-end adjustment
(5) Liability for tax
(d) Withholding of VAT
(e) Filing of return and payment of taxes withheld
(1) Return and payment in case of government employees
(2) Statements and returns
(f) Final withholding tax at source
(g) Creditable withholding tax
(1) Expanded withholding tax
(2) Withholding tax on compensation
(h) Fringe benefit tax
B) Estate Tax
1) Basic principles
2) Definition
3) Nature
4) Purpose or object
5) Time and transfer of properties
6) Classification of decedent
7) Gross estate vis--vis Net estate
8) Determination of gross estate and net estate
9) Composition of gross estate
10) Items to be included in gross estate
11) Deductions from estate
12) Exclusions from estate
13) Tax credit for estate taxes paid in a foreign country
14) Exemption of certain acquisitions and transmissions
15) Filing of notice of death
16) Estate tax return
C) Donors Tax
1) Basic principles
2) Definition
3) Nature
4) Purpose or object
5) Requisites of valid donation
6) Transfers which may be constituted as donation
(a) Sale/exchange/transfer of property for insufficient consideration
(b) Condonation/remission of debt
7) Transfer for less than adequate and full consideration
8) Classification of donor
9) Determination of gross gift
10) Composition of gross gift
11) Valuation of gifts made in property
12) Tax credit for donors taxes paid in a foreign country
13) Exemptions of gifts from donors tax
14) Person liable
15) Tax basis
D) Value-Added Tax (VAT)
1) Concept
2) Characteristics
3) Impact of tax
4) Incidence of tax
5) Tax credit method
6) Destination principle
7) Persons liable
8) VAT on sale of goods or properties
(a) Requisites of taxability of sale of goods or properties
9) Zero-rated sales of goods or properties, and effectively zero rated sales of goods or properties
10) Transactions deemed sale
(a) Transfer, use or consumption not in the course of business of goods/properties originally intended for sale or use in the course of business
(b) Distribution or transfer to shareholders, investors or creditors
(c) Consignment of goods if actual sale not made within 60 days from date of consignment
(d) Retirement from or cessation of business with respect to inventories on hand
11) Change or cessation of status as VAT-registered person
(a) Subject to VAT
(1) Change of business activity from VAT taxable status to VAT-exempt status
(2) Approval of request for cancellation of a registration due to reversion to exempt status
(3) Approval of request for cancellation of registration due to desire to revert to exempt status after lapse of 3 consecutive years
(b) Not subject to VAT
(1) Change of control of a corporation
(2) Change in the trade or corporate name
(3) Merger or consolidation of corporations
12) VAT on importation of goods
(a) Transfer of goods by tax exempt persons
13) VAT on sale of service and use or lease of properties
(a) Requisites for taxability
14) Zero-rated sale of services
15) VAT exempt transactions
(a) VAT exempt transactions, in general
(b) Exempt transaction, enumerated
16) Input tax and output tax, defined
17) Sources of input tax
(a) Purchase or importation of goods
(b) Purchase of real properties for which a VAT has actually been paid
(c) Purchase of services in which VAT has actually been paid
(d) Transactions deemed sale
(e) Transitional input tax
(f) Presumptive input tax
(g) Transitional input tax credits allowed under the transitory and other provisions of the regulations
18) Persons who can avail of input tax credit
19) Determination of output/input tax; VAT payable; Excess inputtax credits
(a) Determination of output tax
(b) Determination of input tax creditable
(c) Allocation of input tax on mixed transactions
(d) Determination of the output tax and VAT payable and
computation of VAT payable or excess tax credits
20) Substantiation of input tax credits
21) Refund or tax credit of excess input tax
(a) Who may claim for refund/apply for issuance of tax credit
certificate (TCC)
b. Period to file claim/apply for issuance of TCC
c. Manner of giving refund
d. Destination principle or Cross-border doctrine
22) Invoicing requirements
(a) Invoicing requirements in general
(b) Invoicing and recording deemed sale transactions
(c) Consequences of issuing erroneous VAT invoice or VAT
official receipt
23) Filing of return and payment
24) Withholding of final VAT on sales to government
E) Compliance Requirements (Internal Revenue Taxes)
1) Administrative requirements
(a) Registration requirements
(1) Annual registration fee
(2) Registration of each type of internal revenue tax
(3) Transfer of registration
(4) Other updates
(5) Cancellation of registration
a. Power of the Commissioner to suspend the business operations of any person who fails to register
(b) Persons required to register for VAT
(1) Optional registration for VAT of exempt person
(2) Cancellation of VAT registration
(3) Changes in or cessation of status of a VAT-registered person
(c) Supplying taxpayer identification number (TIN)
(d) Issuance of receipts or sales or commercial invoices
(1) Printing of receipts or sales or commercial invoices
(2) Invoicing requirements for VAT
(a) Information contained in the VAT invoice or VAT official receipt
i. Consequences of issuing erroneous VAT invoice or official receipts
(e) Exhibition of certificate of payment at place of business
(f) Continuation of business of deceased person
(g) Removal of business to other location
2) Tax returns
(a) Income Tax Returns
(1) Individual Tax Returns
(a) Filing of individual tax returns
1. Who are required to file
a. Return of husband and wife
b. Return of parent to include income of children
c. Return of persons under disability
2. Who are not required to file
3. Where to file
4. When to file
(2) Corporate Returns
(a) Requirement for filing returns
1. Declaration of quarterly corporate income tax
a. Place of filing
b. Time of fling
2. Final adjustment return
a. Place of filing
b. ime of filing
3. Taxable year of corporations
4. Extension of time to file return
(b) Return of corporation contemplating dissolution or reorganization
(c) Return on capital gains realized from sale of shares of stock not traded in the local stock exchange
(3) Returns of receivers, trustees in bankruptcy or assignees
(4) Returns of general partnerships
(5) Fiduciary returns
(b) Estate Tax Returns
(1) Notice of death to be filed
(2) Estate tax returns
(a) Requirements
(b) Time of filing and extension of time
(c) Place of filing
(3) Discharge of executor or administrator from personal liability
(a) Definition of deficiency
(c) Donors Tax Returns
(1) Requirements
(2) Time and place of filing
(d) VAT Returns
(1) In general
(2) Where to file the return
(e) Withholding Tax Returns
(1) Quarterly returns and payments of taxes withheld
(2) Annual information return
3) Tax payments
(a) Income Taxes
(1) Payment, in general; time of payment
(2) Installment payment
(3) Payment of capital gains tax
(b) Estate Taxes
(1) Time of payment
(a) Extension of time
(2) Liability for payment
(a) Discharge of executor or administrator from personal liability
(b) Definition of deficiency
(3) Payment before delivery by executor or administrator
(a) Payment of tax antecedent to the transfer of shares, bonds or rights
(4) Duties of certain officers and debtors
(5) Restitution of tax upon satisfaction of outstanding obligations
(c) Donors Taxes
(1) Time and place of payment
(d) VAT
(1) Payment of VAT
(2) Where to pay the VAT
F) Tax Remedies under the NIRC
1) Taxpayers Remedies
(a) Assessment
(1) Concept of assessment
(a) Requisites for valid assessment
(b) Constructive methods of income determination
(c) Inventory method for income determination
(d) Jeopardy assessment
(e) Tax delinquency and tax deficiency
(2) Power of the Commissioner to make assessments and prescribe additional requirements for tax administration and enforcement
(a) Power of the Commissioner to obtain information, and to summon/examine, and take testimony of persons
(3) When assessment is made
(a) Prescriptive period for assessment
1. False, fraudulent, and non-filing of returns
(b) Suspension of running of statute of limitations
(4) General provisions on additions to the tax
(a) Civil penalties
(b) Interest
(5) Assessment process
(a) Tax audit
(b) Notice of informal conference
(c) Issuance of preliminary assessment notice (PAN)
(d) Notice of informal conference
(e) Issuance of preliminary assessment notice (PAN)
(f) Exceptions to Issuance of PAN
(g) Reply to PAN
(h) Issuance of formal letter of demand and assessment
i. notice/final assessment notice
(i) Disputed assessment
(j) Administrative decision on a disputed assessment
(6) Protesting assessment
(a) Protest of assessment by taxpayer
1. Protested assessment
2. When to file a protest
3. Forms of protest
(b) Submission of documents within 60 days from filing of protest
(c) Effect of failure to protest
(7) Rendition of decision by Commissioner
(a) Denial of protest
1. CIRs actions equivalent to denial of protest
a. Filing of criminal action against taxpayer
b. Issuing a warrant of distraint and levy
2. Inaction by Commissioner
(8) Remedies of taxpayer to action by Commissioner
(a) In case of denial of protest
(b) In case of inaction by Commissioner within 180 days from submission of documents
(c) Effect of failure to appeal
(b) Collection
(1) Requisites
(2) Prescriptive periods
(3) Distraint of personal property including garnishment
(a) Summary remedy of distraint of personal property
1. Procedure for distraint and garnishment
2. Sale of property distrained and disposition of proceeds
a. Release of distrained property upon payment prior to sale
3. Purchase by the government at sale upon distraint
4. Report of sale to BIR
5. Constructive distraint to protect the interest of the government
(4) Summary remedy of levy on real property
(a) Advertisement and sale
(b) Redemption of property sold
(c) Final deed of purchaser
(5) Forfeiture to government for want of bidder
(a) Remedy of enforcement of forfeitures
1. Action to contest forfeiture of chattel
(b) Resale of real estate taken for taxes
(c) When property to be sold or destroyed
(d) Disposition of funds recovered in legal proceedings or obtained from forfeiture
(6) Further distraint or levy
(7) Tax lien
(8) Compromise
(a) Authority of the Commissioner to compromise and abate taxes
(9) Civil and criminal actions
(a) Suit to recover tax based on false or fraudulent returns
(c) Refund
(1) Grounds and requisites for refund
(2) Requirements for refund as laid down by cases
(a) Necessity of written claim for refund
(b) Claim containing a categorical demand for reimbursement
(c) Filing of administrative claim for refund and the suit/proceeding before the CTA within 2 years from date of payment regardless of any supervening cause
(3) Legal basis of tax refunds
(4) Statutory basis for tax refund under the Tax Code
(a) Scope of claims for refund
(b) Necessity of proof for claim or refund
(c) Burden of proof for claim of refund
(d) Nature of erroneously paid tax/illegally assessed
1. collected
(e) Tax refund vis--vis tax credit
(f) Essential requisites for claim of refund
(5) Who may claim/apply for tax refund/tax credit
(a) Taxpayer/withholding agents of non-resident foreign
1. corporation
(6) Prescriptive period for recovery of tax erroneously or
1. illegally collected
(7) Other consideration affecting tax refunds
2) Government Remedies
(a) Administrative remedies
(1) Tax lien
(2) Levy and sale of real property
(3) Forfeiture of real property to the government for want of bidder
(4) Further distraint and levy
(5) Suspension of business operation
(6) Non-availability of injunction to restrain collection of tax
(b) Judicial remedies
3) Statutory Offenses and Penalties
(a) Civil penalties
(1) Surcharge
(2) Interest
(a) In General
(b) Deficiency interest
(c) Delinquency interest
(d) Interest on extended payment
4) Compromise and Abatement of taxes
(a) Compromise
(b) Abatement
G) Organization and Function of the Bureau of Internal Revenue
1) Rule-making authority of the Secretary of Finance
(a) Authority of secretary of finance to promulgate rules and regulations
(b) Specific provisions to be contained in rules and regulations
(c) Non-retroactivity of rulings
2) Power of the Commissioner to suspend the business operation of a taxpayer
III) Local Government Code of 1991, as amended
A) Local Government Taxation
1) Fundamental principles
2) Nature and source of taxing power
a. Grant of local taxing power under the Local Government Code
b. b. Authority to prescribe penalties for tax violations
c. Authority to grant local tax exemptions
d. Withdrawal of exemptions
e. Authority to adjust local tax rates
f. Residual taxing power of local governments
g. Authority to issue local tax ordinances
3) Local taxing authority
a. Power to create revenues exercised thru LGUs
b. Procedure for approval and effectivity of tax ordinances
4) Scope of taxing power
5) Specific taxing power of local government unit (LGUs)
a. Taxing powers of provinces
(1) Tax on transfer of real property ownership
(2) Tax on business of printing and publication
(3) Franchise tax
(4) Tax on sand, gravel and other quarry services
(5) Professional tax
(6) Amusement tax
(7) Tax on delivery truck/van
b. Taxing powers of cities
c. Taxing powers of municipalities
(1) Tax on various types of businesses
(2) Ceiling on business tax impossible on municipalities within Metro Manila
(3) Tax on retirement on business
(4) Rules on payment of business tax
(5) Fees and charges for regulation & licensing
(6) Situs of tax collected
d. Taxing powers of barangays
e. Common revenue raising powers
(1) Service fees and charges
(2) Public utility charges
(3) Toll fess or charges
f. Community tax
6) Common limitations on the taxing powers of LGUs
7) Collection of business tax
a. Tax period and manner of payment
b. Accrual of tax
c. Time of payment
d. Penalties on unpaid taxes, fees or charges
e. Authority of treasurer in collection and inspection of books
8) Taxpayers remedies
a. Periods of assessment and collection of local taxes, fees or charges
b. Protest of assessment
c. Claim for refund of tax credit for erroneously or illegally collected tax, fee or charge
9) Civil remedies by the LGU for collection of revenues
a. Local governments lien for delinquent taxes, fees or charges
b. Civil remedies, in general
(1) Administrative action
(2) Judicial action
c. Procedure for administrative action
(1) Distraint of personal property
(2) Levy of real property, procedure
(3) Further distraint or levy
(4) Exemption of personal property from distraint or levy
(5) Penalty on local treasurer for failure to issue and execute warrant of distraint or levy
d. Procedure for judicial action
B) Real Property Taxation
1) Fundamental principles
2) Nature of real property tax
3) Imposition of real property tax
a. Power to levy real property tax
b. Exemption from real property tax
4) Appraisal and assessment of real property tax
a. Rule on appraisal of real property at fair market value
b. Declaration of real property
c. Listing of real property in assessment rolls
d. Preparation of schedules of fair market value
(1) Authority of assessor to take evidence
(2) Amendment of schedule of fair market value
e. Classes of real property
f. Actual use of property as basis of assessment
g. Assessment of real property
(1) Assessment levels
(2) General revisions of assessments and property classification
(3) Date of effectivity of assessment or reassessment
(4) Assessment of property subject to back taxes
(5) Notification of new or revised assessment
h. Appraisal and assessment of machinery
5) Collection of real property tax
a. Date of accrual of real property tax
b. Collection of tax
(1) Collecting authority
(2) Duty of assessor to furnish local treasurer with assessment
(a) rolls
(3) Notice of time for collection of tax
c. Periods within which to collect real property tax
d. Special rules on payment
(1) Payment of real property tax in installments
(2) Interests on unpaid real property tax
(3) Condonation of real property tax
e. Remedies of LGUs for collection of real property tax
(1) Issuance of notice of delinquency for real property tax payment
(2) Local governments lien
(3) Remedies in general
(4) Resale of real estate taken for taxes, fees or charges
(5) Further levy until full payment of amount due
6) Refund or credit of real property tax
a. Payment under protest
b. Repayment of excessive collections
7) Taxpayers remedies
a. Contesting an assessment of value of real property
(1) Appeal to the Local Board of Assessment Appeals (LBAA)
(2) Appeal to the Central Board of Assessment Appeals(CBAA)
(3) Effect of payment of tax
b. Payment of real property under protest
(1) File protest with local treasurer
(2) Appeal to the LBSS
(3) Appeal to the CBAA
(4) Appeal to the CTA
(5) Appeal to the SC
IV) Tariff and Customs Code of 1978, as amended (TCC)
A) Tariff and duties, defined
B) General rule: All imported articles are subject to duty. Importation
1) by the government taxable.
C) Purpose for imposition
D) Flexible tariff clause
E) Requirements of importation
1) Beginning and ending of importation
2) Obligations of importer
a. Cargo manifest
b. Import entry
c. Declaration of correct weight or value
d. Liability for payment of duties
e. Liquidation of duties
f. Keeping of records
F) Importation in violation of TCC
1) Smuggling
2) Other fraudulent practices
G) Classification of goods
1) Taxable importation
2) Prohibited importation
3) Conditionally-free importation
H) Classification of duties
1) Ordinary/Regular duties
a. Ad valorem; Methods of valuation
(1) Transaction value
(2) Transaction value of identical goods
(3) Transaction value of similar goods
(4) Deductive value
(5) Computed value
(6) Fallback value
b. Specific
2) Special duties
a. Dumping duties
b. Countervailing duties
c. Marking duties
d. Retaliatory/Discriminatory duties
e. Safeguard
I) Drawbacks
J) Remedies
1) Government
a. Administrative/Extrajudicial
(1) Search, seizure, forfeiture, arrest
b. Judicial
(1) Rules on appeal including jurisdiction
2) Taxpayer
a. Protest
b. Abandonment
c. Abatement and refund
V) Judicial Remedies; Republic Act 1125 The Act that Created the Court of Tax Appeals (CTA), as amended, and the Revised Rules of the Court of Tax Appeals
A) Jurisdiction of the Court of Tax Appeals
1) Exclusive appellate jurisdiction over civil tax cases
a. Cases within the jurisdiction of the Court en banc
b. Cases within the jurisdiction of the Court in divisions
2) Criminal cases
a. Exclusive original jurisdiction
b. Exclusive appellate jurisdiction in criminal cases
B) Judicial Procedures
1) Judicial action for collection of taxes
a. Internal revenue taxes
b. Local taxes
(1) Prescriptive period
2) Civil cases
a. Who may appeal, mode of appeal, effect of appeal
(1) Suspension of collection of tax
(a) Injunction not available to restrain collection
(2) Taking of evidence
(3) Motion for reconsideration or New trial
b. Appeal to the CTA, en banc,
c. Petition for review on certiorari to the Supreme Court
3) Criminal cases
a. Institution and prosecution of criminal actions
(1) Institution on civil action in criminal action
b. Appeal and period to appeal
(1) Solicitor General as counsel for the People and government officials sued in their official capacity
c. Petition for review on certiorari to the Supreme Court
C) Taxpayers suit impugning the validity of tax measures or acts of taxing authorities
a. Taxpayers suit, defined
b. Distinguished from citizens suit
c. Requisites for challenging the constitutionality of a tax measure or act of taxing authority
(1) Concept of locus standi as applied in taxation
(2) Doctrine of transcendental importance
(3) Ripeness for judicial determination