taxation} review notes of prof domondon} made 2001} 67 pages

8/12/2019 Taxation} Review Notes of Prof Domondon} Made 2001} 67 Pages

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2001 PRE-WEEK REVIEW NOTES

TAXATION

By

Prof. Abelardo T. Domondon

HOW TO USE THESE NOTES:

These Notes n the form of re!e" #$estons and te%t$al materals "eres&e'ally &re&ared by the a$thor for the e%'l$s!e $se of Bar (anddates "hoattended hs le't$res n Ta%aton. They are to be $sed as s$&&lements to hs BarRe!e"er n Ta%aton) Vols) I and II.

The &$r&ose of these Notes s to test the 'anddate*s ablty to ans"erhy&othet'al #$estons as "ell as those based on sele'ted 'ases de'ded by theS$&reme (o$rt d$rn+ the &erod ,-/.

It s s$++ested that the re!e"ee sho$ld 'o!er the s$++ested ans"ers "hle

readn+ the #$estons. Ths sho$ld for'e hm to re'all the a&&l'able la" and0$rs&r$den'e. If there s tme) the ans"ers sho$ld be "rtten on a +rade s'hoolnoteboo1 $sn+ the s+n &en to be $sed d$rn+ the a't$al e%ams. Ea'h #$estonsho$ld be ans"ered "thn a s&an of nne 23 mn$tes only. (he'1 yo$r ans"ersreferrn+ to the S455ESTED ANSWERS.

Do not 6E6ORI7E the s$++ested ans"ers. They "ere &$r&osely made tobe len+thy to ser!e as e%&lanatory de!'es. Ths s so) be'a$se the re!e"ee doesnot ha!e tme any more to refer ba'1 to the re!e" materals. If the 'anddate stll'o$ld not $nderstand the 'on'e&ts after readn+ these notes) then refer to thea$thor*s Bar Re!e"er n Ta%aton) Vols) I and II.

IMPORTANT: The #$estons as1ed n the Bar may not be "orded n the samemanner as the #$estons sho"n n these notes) therefore the re!e"ee s "arnedthat t sho$ld be the 'on'e&ts sho"n n the #$estons and s$++estons that hesho$ld master and not the #$estons and ans"ers per se. Be s&e'ally 'aref$l"here the Bar #$estons are !aratons of the #$estons n'l$ded be'a$se theans"ers may be dfferent. It s s$++ested that &art'$lar attenton be +!en to#$estons and areas "h'h are mar1ed ***

WARNING:These materals are 'o&yr+hted and are only a$thor8ed for the $se of bar

'anddates "ho ha!e attended the Ta% Re!e" le't$res of Prof. Domondon andothers he has &ersonally a$thor8ed. These n'l$de those "ho ha!e attended thele't$res 'ond$'ted by Primus 6ana+ement 4nlmted Ser!'es) In'.) held at theAsan So'al Instt$te) In'.) Le Bar Re!e"s and Semnars) In'.) 4n!ersty of thePhl&&nes) 4n!ersty of Santo Tomas) Ateneo de 6anla 4n!ersty) SanSebastan (olle+e-Re'olletos and 9ar Eastern 4n!ersty. S!u"en!s o# o!$ers%$ools&n" re'ie(ees o# o!$er re'ie( %en!ers &re no! &u!$ori)e" !o use !$ese


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no!es. These materals are 'o&yr+hted. UNAUTHORIE+ USERS SHALL ,ESU,-E.T TO THE LAW O/ KARMASU.H THAT THE WILL NEERPASS THE ,AR

GENERAL PRINCIPLES OF AXA ION *** 1 W$en m&y !$e 3o(er !o !& in%lu"e !$e 3o(er !o "es!roy4 W$en iseer%ise o# !$e 3o(er !o !& no! "es!ru%!i'e o# !&3&yer5s 3ro3er!y4

S455ESTED ANSWER:The &o"er to ta% n'l$des the &o"er to destroy) "here the ta% s a !ald ta%. Ths

s so be'a$se a ta%&ayer 'o$ld not see1 the n$llf'aton of the !ald ta% solely $&on the&remse that the ta% "ll m&o!ersh hm.

The e%er'se of the &o"er to ta% s not destr$'t!e of ta%&ayer*s &ro&erty "here ts an n!ald ta%) "h'h !olates the nherent or 'onstt$tonal lmtatons. Ths s sobe'a$se there s a sym&athet' 'o$rt that shall 'ome to the s$''or of the ta%&ayer andde'lare s$'h ta% as n!ald.

2 +is%uss !$e %on%e3! o# in!er3re!&!ion o# !& l&(s &s "i##eren!i&!e" #rom !$e%on%e3! o# in!er3re!&!ion o# !& eem3!ion l&(s

S455ESTED ANSWER: A ta% 'annot be m&osed $nless t s s$&&orted by the'lear and e%&ress lan+$a+e of a stat$te. 2Da!ao 5$lf ;$mber (or&oraton !.(ommssoner of Internal Re!en$e) et al.) /< S(RA =>) ??3 In short) n 'ase of do$bt)ta% la"s m$st be 'onstr$ed str'tly a+anst the State and lberally n fa!or of the ta%&ayer.Ths s be'a$se ta%es) as b$rdens "h'h m$st be end$red by the ta%&ayer) sho$ld not be&res$med to +o beyond "hat the la" e%&ressly and 'learly de'lares. 2;n'oln Phl&fe Ins$ran'e (om&any) In'.) et'.) !. (o$rt of A&&eals) et al.) /< S(RA /) 3

On the other hand) "hen a ta% s $n#$estonably m&osed) a 'lam of e%em&ton

form ta% &ayments m$st be 'learly sho"n and based on lan+$a+e n the la" too &lan to bemsta1en. 2Da!ao 5$lf ;$mber (or&oraton)supra3NOTES AND (O66ENTS: The abo!e 'on'e&ts are also the holdn+ n

2(ommssoner of Internal Re!en$e !. (o$rt of A&&eals) et al.) 5.R. No. ,=,


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e. (O6IT. Res&e't sho$ld be a''orded to other so!ere+n natons. The &o"erof ta%aton s a h+h &rero+at!e of so!ere+nty. The &ro&ertes of other so!ere+n natons"thn the terrtory of the ta%n+ a$thorty sho$ld not be s$b0e't to ta%aton as a meas$reof res&e't to a 'o-e#$al.

*** W$&! &re !$e %ons!i!u!ion&l limi!&!ions on !$e 3o(er o# !&&!ion4

S455ESTED ANSWER: *** 5ENERA; OR INDIRE(T (ONSTIT4TIONA; ;I6ITATIONS:

a. +ue 3ro%ess %l&useFb. E;u&l 3ro!e%!ion %l&useF'. /ree"om o# !$e 3ressFd. Reli8ious #ree"ome(ise 3resen!e" &n e$&us!i'e s!u"y on !$e !& r&!es on@e(elry le'ie" 7y "i##eren! Asi&n %oun!ries

T$e !ri&l %our! "e%l&re" !$e ;ues!ione" 3ro'isions &s ino3er&!i'e &n" (i!$ou!#or%e &n" e##e%! inso#&r &s !$e @e(elers &re %on%erne" T$e !ri&l %our! m&"e !$eo7ser'&!ion !$&! in"ee" 8o'ernmen! !& 3oli%y !re&!s @e(elry &s non=essen!i&l i!ems?&n" !$ere#ore? !&e" $e&'ily< !$&! !$e 3resen! !&ri## &n" !& s!ru%!ure in%re&sem&nu#&%!urin8 %os! &n" ren"ers !$e lo%&l @e(elry m&nu#&%!urers un%om3e!i!i'e

&8&ins! o!$er %oun!ries W&s !$ere le8&l 7&sis #or !$e !ri&l %our!s "e%l&r&!ion 4E3l&in

S455ESTED ANSWER: No. There "as no le+al bass for the follo"n+ reasons:a. The tral 0$d+e en'roa'hed $&on matters &ro&erly falln+ "thn the &ro!n'e of

le+slat!e f$n'tons. In ma1n+ the aforesad obser!atons) the tral 0$d+e o!erloo1ed thefa't that s$'h matters are not for hm to de'de. There are reasons "hy 0e"elry) a non-essental tem) s ta%ed as t s n ths 'o$ntry and these reasons) delberated $&on by thele+slat$re are beyond the rea'h of 0$d'al #$estonn+.

b. The tral 'o$rt s not the &ro&er for$m for the !entlaton of the ss$es rased bythe 0e"elers. It s the le+slat$re to "h'h relef m$st be so$+ht) be'a$se "th the

le+slat$re &rmarly les the ds'reton to determne the nat$re 21nd3) ob0e't 2&$r&ose3)e%tent 2rate3) 'o!era+e 2s$b0e'ts3 andsitus2&la'e3 of ta%aton. The 0$d'ary 'annot freelydel!e nto those matters "h'h) by 'onstt$tonal fat) r+htly rest on le+slat!e 0$d+ment.

'. The ta% rates of other 'o$ntres sho$ld not be $sed as a yardst'1) ndetermnn+ "hat may be the &ro&er s$b0e'ts of ta%aton n o$r o"n 'o$ntry. It sho$ld be&onted o$t that n m&osn+ the aforementoned ta%es and d$tes) the State) a'tn+ tho$+hthe le+slat!e and e%e'$t!e bran'hes) s e%er'sn+ ts so!ere+n &rero+at!e. It snherent n the &o"er to ta% that the State be free to sele't the s$b0e'ts of ta%aton) and thas been re&eatedly held that) Mne#$altes "h'h res$lt from a sn+ln+ o$t of one&art'$lar 'lass of ta%aton) or e%em&ton) nfrn+e no 'onstt$tonal lmtaton.M2(ommssoner of Internal Re!en$e) et al.) !. Santos) et al.) /== S(RA >,=3

*** 10 A #ie" &nnu&l li%ense #ee on !$ose en8&8e" in !$e 7usiness o# 8ener&len!er3rise (&s &lso im3ose" on !$e s&le o# 7i7les 7y & reli8ious se%! Is !$is '&li" 4

S455ESTED ANSWER: No) be'a$se t !olates the 'onstt$tonally +$aranteedfreedom of the &ress) and of rel+on..

As a l'ense fee s f%ed n amo$nt and $nrelated to the re'e&ts of the ta%&ayer)s$'h a l'ense fee) "hen a&&led to a rel+o$s se't s a't$ally m&osed as a 'ondton forthe free e%er'se of rel+on. A l'ense fee restrans n ad!an'e those 'onstt$tonallbertes of &ress and rel+on and ne!tably tends to s$&&ress ther e%er'se.

***11 T$e EAT L&( im3oses & AT re8is!r&!ion #ee o# P1?00000 on non=ATen!er3rises ($i%$ in%lu"es &mon8 o!$ers? reli8ious se%!s ($i%$ sells &n" "is!ri7u!es

reli8ious li!er&!ure Is !$is 'iol&!i'e o# reli8ious #ree"om 4

S455ESTED ANSWER: No. The P,). VAT re+straton fee) altho$+h af%ed amo$nt s not m&osed for the e%er'se of a &r!le+e b$t only for the &$r&ose ofdefrayn+ &art of the 'ost of re+straton.

The re+straton re#$rement s a 'entral feat$re of the VAT system. It s des+nedto &ro!de a re'ord of ta% 'redts be'a$se any &erson "ho s s$b0e't to the &ayment of theVAT &ays an n&$t ta%) e!en as he 'olle'ts an o$t&$t ta% on sales made or ser!'esrendered. The re+straton fee s th$s more of an admnstrat!e fee) one not m&osed onthe e%er'se of a &r!le+e) m$'h less a 'onstt$tonal r+ht. 2Tolentno !. Se'retary of9nan'e) et al.) and 'om&anon 'ases) /


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Gul# Ele%!ri% Po(er .o? In%? e! &l? 1B9 S.RA 2C D1JJ ($ere i! (&s $el" !$&! !$eim3osi!ion o# & !& on #r&n%$ise $ol"ers (i!$ !$e Fm&8i% (or"s is 'iol&!i'e o# !$enon=im3&irmen! %l&use

T$e Su3reme .our! in !$e Lin8&yen Gul# %&se $el" !$&! %$&r!ers or s3e%i&ll&(s 8r&n!e" 7y !$e le8isl&!ure &re in !$e n&!ure o# 3ri'&!e %on!r&%!s Rule on !$e%on!en!ion o# Airlines? In%

S455ESTED ANSWER: The EVAT does not !olate the non-m&arment'la$se. Tolentno !. Se'retary of 9nan'e and ts 'om&anon 'ases) //?) &ro!des the reasons "hy there s no !olaton:

a. Art'le CII) Se'. ,, of the (onstt$ton &ro!des that the +rant of a fran'hsefor the o&eraton of a &$bl' $tlty s s$b0e't to amendment. alteraton or re&eal by(on+ress "hen the 'ommon +ood re#$resF

b. Not only e%stn+ la"s b$t also the reser!aton of essental attrb$tes ofso!ere+nty s read nto 'ontra'ts as a &ost$late of the le+al orderF

'. (ontra'ts m$st be $nderstood as ha!n+ been made n referen'e to the &ossblee%er'se of the r+htf$l a$thorty of the +o!ernment and no obl+aton of 'ontra't 'ane%tend to defeat that a$thortyF

d. A la"f$l ta% on a ne" s$b0e't) or an n'reased ta% on an old one) does notnterfere "th a 'ontra't or m&ars ts obl+aton) "thn the meann+ of the 'onstt$ton.E!en tho$+h s$'h ta%aton may affe't &art'$lar 'ontra'ts) as t may n'rease the debt ofone &erson and lessen the se'$rty of another) or may m&ose addtonal b$rdens $&on one'lass and release the b$rdens of another) stll the ta% m$st be &ad $nless &rohbted by the'onstt$ton) nor 'an t be sad that t m&ars the obl+atons of any e%stn+ 'ontra't n tstr$e and le+al sense.

*** 16 Mer&l%o (&s 8r&n!e" & #r&n%$ise !o o3er&!e &n ele%!ri% li8$! &n" 3o(er

ser'i%e in .&l&m7&? L&8un& some!ime in 1J6 un"er P+ No 1 Un"er !$e#r&n%$ise Mer&l%o 3&ys 2 #r&n%$ise !& on o# i!s 8ross re%ei3!s &n" F&ny l&( !o !$e

%on!r&ry no!(i!$s!&n"in8 7e in lieu o# &ll !&es &n" &ssessmen!s o# ($&!e'er n&!ureim3ose" 7y &ny n&!ion&l or lo%&l &u!$ori!y or e&rnin8s? re%ei3!s? in%ome &n"3ri'ile8e o# 8ener&!ion? "is!ri7u!ion &n" s&le o# ele%!ri% %urren! Pursu&n! !o !$eLo%&l Go'ernmen! .o"e? !$e 3ro'in%e o# L&8un& en&%!e" &n or"in&n%e im3osin8 r&n%$ise o# 0 o# 1 o# !$e 8ross &nnu&l re%ei3!s o# 7usiness en@oyin8 & #r&n%$isere&li)e" "urin8 !$e 3re%e"in8 %&len"&r ye&r (i!$in !$e 3ro'in%e in%lu"in8 %i!ies

lo%&!e" !$erein Rule on !$e '&li"i!y o# !$e !& or"in&n%eS455ESTED ANSWER: The ta% ordnan'e s !ald. 4nder the no" &re!aln+

(onstt$ton) "here there s nether a +rant nor &rohbton by stat$te) the ta% &o"er m$stbe deemed to e%st altho$+h (on+ress may &ro!de stat$tory lmtatons and +$delnes.The bas' ratonale for the '$rrent r$le s to safe+$ard the !ablty and self-s$ff'en'y of

lo'al +o!ernment $nts by dre'tly +rantn+ them +eneral and broad ta% &o"ers.The ;o'al 5o!ernment (ode e%&l'tly a$thor8es &ro!n'es and 'tes)not"thstandn+ any e%em&ton +ranted by any la" or other s&e'al la" to m&ose a ta%on b$snesses en0oyn+ a fran'hse. Ind'at!e of the le+slat!e ntent to 'arry o$t the'onstt$tonal mandate of !estn+ broad ta% &o"ers to lo'al +o!ernment $nts) the ;o'al5o!ernment (ode has "thdra"n ta% e%em&tons or n'ent!es theretofore en0oyed by'ertan enttes.

In addton) the ;o'al 5o!ernment (ode 'ontans a +eneral re&ealn+ 'la$se. The&hrase n le$ of all ta%es has to +!e "ay to the &erem&tory lan+$a+e of the ;o'al5o!ernment (ode "h'h s&e'f'ally &ro!des for the "thdra"al of all e%em&tons. The(o$rt has !e"ed ts &re!o$s r$ln+s as layn+ stress on the le+slat!e ntent of theamendatory la" "hether the ta% e%em&ton &r!le+e s to be "thdra"n or not rather than

on "hether the la" 'an or 'annot "thdra" the ta% e%em&ton) "tho$t !olatn+ the'onstt$ton. 26anla Ele'tr' (om&any !. Pro!n'e of ;a+$na) et al.) 5.R. No. ,


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NOTES AND (O66ENTS: It s &ossble that the Bar #$eston m+ht 'ome fromone of the follo"n+ areas: *** Po(er o# lo%&l 8o'ernmen!s !o !&. ;o'al +o!ernments do not ha!e the nherent&o"er to ta% e%'e&t to the e%tent that s$'h &o"er m+ht be dele+ated to them ether bythe bas' la" or stat$te. Presently) $nder Art'le C of the ,?= (onstt$ton a +eneraldele+aton of that &o"er has been +!en n fa!or of lo'al +o!ernment $nts.

Ne!ertheless) the f$ndamental la" dd not ntend the dele+aton to be absol$te and$n'ondtonal) the 'onstt$tonal ob0e't!e ob!o$sly s to ens$re that) "hle lo'al+o!ernment $nts are ben+ stren+thened and made more a$tonomo$s) the le+slat$re m$ststll see to t that:

a. the ta%&ayer "ll not be o!er-b$rdened or saddled "th m$lt&le and$nreasonable m&ostonsF

b. ea'h lo'al +o!ernment $nt "ll ha!e ts far share of a!alable reso$r'esF'. the reso$r'es of the natonal +o!ernment "ll be $nd$ly dst$rbedF andd. lo'al ta%aton "ll be far) $nform and 0$st. 26anla Ele'tr' (om&any !.

Pro!n'e of ;a+$na) et al.) 5.R. No. ,


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b3 Ta%n+ a$thorty'3 Ta%n+ &$r&osed3 Ta%n+ &erod

/3 Ta%n+ all of the s$b0e'ts or ob0e'ts for the frst tme "tho$t ta%n+ allof them for the se'ond tme.

If any of the elements are absent then there s ndre't d$&l'ate ta%aton"h'h s not &rohbted by the 'onstt$ton.NOTES AND (O66ENTS: There may be a &roblem on do$ble ta%aton)

n'l$dn+ 'om&ensaton and set-off.

*** 1 +e#ine in!ern&!ion&l @uri"i%&l "ou7le !&&!ionS455ESTED ANSWER: The m&oston of 'om&arable ta%es n t"o or more

states on the same ta%&ayer n res&e't of the same s$b0e't matter and for dent'al+ro$nds.

Do$ble ta%aton $s$ally ta1es &la'e "hen a &erson s a resdent of a 'ontra'tn+state and der!es n'ome from or o"ns 'a&tal n) the other 'ontra'tn+ state and bothstates m&ose ta% on that n'ome or 'a&tal. 2(ommssoner of Internal Re!en$e !. S.(.

ohnson and Son) In'.) et al.) 5.R. No. ,/=,@) &rom. $ne /@) ,

*** 1B W$&! &re !$e me!$o"s #or &'oi"&n%e o# "ou7le !&&!ion 4 E3l&in e&%$7rie#ly 7u! %om3re$ensi'ely

S455ESTED ANSWER: The follo"n+ are the methods of a!odn+ do$bleta%aton:

a. Ta% treates "h'h e%em&ts fore+n natonals from lo'al ta%aton and lo'alnatonals from fore+n ta%aton $nder the &rn'&le of re'&ro'ty.

b. Ta% 'redts "here fore+n ta%es are allo"ed as ded$'tons from lo'al ta%es thatare d$e to be &ad.

'. Allo"n+ fore+n ta%es as a ded$'ton from +ross n'ome.

NOTES AND (O66ENTS:a. Pur3ose o# !& !re&!ies. To re'on'le the natonal fs'al le+slatons of the

'ontra'tn+ &artes n order to hel& the ta%&ayer a!od sm$ltaneo$s ta%aton n t"odfferent 0$rsd'tons. 6ore &re'sely) the ta% 'on!entons are drafted "th a !e" to"ardsthe elmnaton of nternatonal 0$rd'al do$ble ta%aton.

b. R&!ion&le #or &'oi"in8 "ou7le !&&!ion. To en'o$ra+e the free flo" of+oods and ser!'es and the mo!ement of 'a&tal) te'hnolo+y and &ersons bet"een'o$ntres) 'ondtons deemed !tal n 'reatn+ rob$st and dynam' e'onomes. 9ore+nn!estments "ll only thr!e n a farly &red'table and reasonable nternatonal n!estment'lmate and the &rote'ton a+anst do$ble ta%aton s 'r$'al n 'reatn+ s$'h a 'lmate. *** '. Me!$o"s resor!e" !o 7y & !& !re&!y in or"er !o elimin&!e "ou7le !&&!ion:

9rst 6ethod: It sets o$t the res&e't!e r+hts to ta% of the state of so$r'e or st$sand of the state of resden'e "th re+ard to 'ertan 'lasses of n'ome or 'a&tal. In some'ases) an e%'l$s!e r+ht to ta% s 'onferred on one of the 'ontra'tn+ statesF ho"e!er) forother tems of n'ome or 'a&tal) both states are +!en the r+ht to ta%) altho$+h theamo$nt of ta% that may be m&osed by the state of so$r'e s lmted.

Se'ond 6ethod: The state of so$r'e s +!en a f$ll or lmted r+ht to ta% to+ether"th the state of resden'e. In ths 'ase) the treates ma1e t n'$mbent $&on the state ofresden'e to allo" relef n order to a!od do$ble ta%aton. T"o methods of relef are$sed:

,3 The e%em&ton method the n'ome or 'a&tal "h'h s ta%able n thestate of so$r'e or st$s s e%em&ted n the state of resden'e) altho$+h n somenstan'es t may be ta1en nto a''o$nt n determnn+ the rate of ta% a&&l'able to

the ta%&ayer*s remann+ n'ome or 'a&tal./3 The 'redt method altho$+h the n'ome or 'a&tal "h'h s ta%ed n

the state of so$r'e s stll ta%able n the state of resden'e) the ta% &ad n theformer s 'redted a+anst the ta% le!ed n the latter. 2(ommssoner of InternalRe!en$e !. S.(. ohnson and Son) In'.) et al.) 5.R. No. ,/=,@) &rom. $ne /@),3Dfferen'e bet"een the e%em&ton method and the 'redt method. The e%em&ton

method fo'$ses on n'ome or 'a&tal tself "hle the 'redt method fo'$ses $&on the ta%. .


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2(ommssoner of Internal Re!en$e !. S.(. ohnson and Son) In'.) et al.) 5.R. No.,/=,@) &rom. $ne /@) ,3

*** 1C T$e RP=Wes! Germ&ny T& Tre&!y 3ro'i"es & 10 !& on roy&l!ies 7u!e3ressly &llo(s &8&ins! Germ&n in%ome &n" %or3or&!e !& o# 20 o# !$e 8rossroy&l!ies 3&i" un"er !$e l&( o# !$e P$ili33ines On !$e o!$er $&n" !$e RP=US T&Tre&!y "oes no! 3ro'i"e #or & simil&r !& %re"i!in8 T$us? !$e !& on roy&l!ies

e&rne" 7y US #irms in !$e P$ili33ines m&y ei!$er 7e o# !$ree r&!es: 2 3er%en! o#!$e 8ross &moun! o# !$e roy&l!ies< 1 3er%en! ($en !$e roy&l!ies &re 3&i" 7y &

%or3or&!ion re8is!ere" (i!$ !$e P$ili33ine ,o&r" o# In'es!men!s &n" en8&8e" in3re#erre" &re&s o# &%!i'i!ies< or !$e lo(es! r&!e o# P$ili33ine !& !$&! m&y 7eim3ose" on roy&l!ies o# !$e s&me >in" 3&i" un"er simil&r %ir%ums!&n%es !o & resi"en!o# & !$ir" s!&!e

M&y US .or3or&!ions %l&im en!i!lemen! !o !$e Fmos! #&'ore" n&!ion !&r&!e o# 10 on roy&l!ies &s 3ro'i"e" in !$e RP=US T& Tre&!y in rel&!ion !o !$e RP=

Wes! Germ&ny T& Tre&!y 4 E3l&in (i!$ re&sonsS455ESTED ANSWER: No. The enttlement of the ,L rate by 4.S. frms

des&te the absen'e of a mat'hn+ 'redt 2/L for royaltes3 "o$ld dero+ate from thedes+n behnd the most fa!ored naton 'la$se to +rant e#$alty of nternatonal treatmentsn'e the ta% b$rden lad $&on the n'ome of the n!estor s not the same n the t"o'o$ntres. The smlarty n the 'r'$mstan'es of &ayment of ta%es s a 'ondton for theen0oyment of the most fa!ored naton treatment &re'sely to $nders'ore the need fore#$alty of treatment. 2(ommssoner of Internal Re!en$e !. S.(. ohnson and Son) In'.)et al.) 5.R. No. ,/=,@) &rom. $ne /@) ,3

NOTES AND (O66ENTS:a. In!en!ion 7e$in" &"o3!ion o# 3ro'ision on Frelie# #rom "ou7le !&&!ion

The ntenton sho$ld be 'onsdered n the l+ht of the &$r&ose behnd the most fa!orednaton 269N3 'la$se "h'h s to +rant to the 'ontra'tn+ &arty treatment not less fa!orable

than "h'h has been or may be +ranted to the most fa!ored amon+ other 'o$ntres.The 69N s ntended to establsh the &rn'&le of e#$alty of nternatonal

treatment by &ro!dn+ that the 't8ens or s$b0e'ts of the 'ontra'tn+ natons may en0oy&r!le+es a''orded by ether &arty to those of the most fa!ored naton. The essen'e ofthe &rn'&le s to allo" the ta%&ayer n one state to a!al of more lberal &ro!sons+ranted n another ta% treaty to "h'h the 'o$ntry of resden'e of s$'h ta%&ayer s also a&arty &ro!ded that the s$b0e't matter of ta%aton s the same as that n the ta% treaty $nder"h'h the ta%&ayer s lable. 2(ommssoner of Internal Re!en$e !. S.(. ohnson and Son)In'.) et al.) 5.R. No. ,/=,@) &rom. $ne /@) ,3

1J T$e E3&n"e" &lue=A""e" T& L&( is &n in"ire%! !& ($i%$ m&y 7e%onsi"ere" &s re8ressi'e in %$&r&%!er I! is & #ie" !& !$ere#ore !$e lo(er is !$ein%ome !$e !&es !$&! &re 3&i" &re 3ro3or!ion&!ely $i8$er Is !$is 'iol&!i'e o# !$e

%ons!i!u!ion ($i%$ m&n"&!es !$&! .on8ress s$&ll e'ol'e & 3ro8ressi'e sys!em o#!&&!ion 4 E3l&in

S455ESTED ANSWER: There s no !olaton of the 'onstt$tonal mandatefor the follo"n+ reasons:

a. The mandate to (on+ress s not to &res'rbe b$t to e!ol!e a &ro+ress!e systemof ta%aton. Other"se) sales ta%es "h'h &erha&s are the oldest form of ndre't ta%es)"o$ld ha!e been &rohbted "th the &ro'lamaton of the 'onstt$tonal &ro!son. Salesta%es are also re+ress!e.

b. The (onstt$ton does not really &rohbt the m&oston of ndre't ta%es "h'h)l1e the VAT) are re+ress!e. The 'onstt$tonal &ro!son means sm&ly that ndre't ta%es

sho$ld be mnm8ed.'. Resort to ndre't ta%es sho$ld be mnm8ed b$t not a!oded entrely be'a$se t

s dff'$lt) f not m&ossble) to a!od m&osn+ s$'h ta%es a''ordn+ to the ta%&ayer*sablty to &ay.

In the 'ase of VAT) the la" mnm8es the re+ress!e effe'ts of ths m&oston by&ro!dn+ for 8ero ratn+ of 'ertan transa'tons "hle +rantn+ e%em&tons to othertransa'tons. The transa'tons "h'h are s$b0e't to VAT are those "h'h n!ol!e +oods

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and ser!'es "h'h are $sed or a!aled of manly by h+her n'ome +ro$&s. 2Tolentno !.

Se'retary of 9nan'e and 'om&anon 'ases) /H S(RA >/?3

GGG1 T$e .ons!i!u!ion re;uires !$&! &ll re'enue 7ills s$&ll ori8in&!e e%lusi'ely#rom !$e House o# Re3resen!&!i'es W&s !$is 'iol&!e" ($en !$e EAT 7ill !$&!

ori8in&!e" #rom !$e House "i" no! 7e%ome !$e EAT l&( 4 E3l&ina. The (onstt$ton sm&ly means that the ntat!e for fln+ re!en$e) tarff or ta%blls m$st 'ome from the o$se of Re&resentat!es on the theory that) ele'ted as they arefrom the dstr'ts) the 6embers of the o$se 'an be e%&e'ted to be more senst!e to thelo'al needs and &roblems.

b. It s not the la" - b$t the re!en$e bll - "h'h s re#$red by the (onstt$ton toor+nate e%'l$s!ely n the o$se of Re&resentat!es be'a$se a bll or+natn+ n theo$se may $nder+o s$'h e%tens!e 'han+es n the Senate that the res$lt may be are"rtn+ of the "hole) and a dstn't bll may be &rod$'ed.

'. To nsst that a re!en$e stat$te - not only the bll "h'h ntated the le+slat!e&ro'ess '$lmnatn+ n the ena'tment of the la" - m$st s$bstantally be the same as theo$se bll "o$ld be to deny the Senate*s &o"er not only to 'on'$r "th amendmentsb$t also to &ro&ose amendment. It "o$ld be to !olate the 'oe#$alty of le+slat!e&o"er of the t"o ho$ses of (on+ress and n fa't ma1e the o$se s$&eror to the Senate.

5!en the &o"er of the Senate to &ro&ose amendments) t 'an &ro&ose ts o"n!erson e!en "th res&e't to blls "h'h are re#$red by the (onstt$ton to or+nate n theo$se.

d. Nor does the (onstt$ton &rohbt the fln+ n the Senate of a s$bstt$te bll nant'&aton of ts re'e&t of the bll from the o$se) so lon+ as a'ton by the Senate as abody s "thheld &endn+ re'e&t of the o$se bll. 2Tolentno !. Se'retary of 9nan'e and'om&anon 'ases) /


12/64

21 M&nil& Gol# .oun!ry .lu7? In% is & non=s!o%> %or3or&!ion I!m&in!&ins & 8ol# %ourse &n" o3er&!es & %lu7$ouse (i!$ & loun8e? 7&r &n" "inin8room? 7u! !$ese #&%ili!ies &re #or !$e e%lusi'e use o# i!s mem7ers &n" &%%om3&nie"8ues!s? &n" i! %$&r8es on %os!=3lus=e3ense 7&sis

T$e %lu7 no( %l&ims !$&! Se%!ion 92 inser!in8 & ne( Se%!ion 11=A in !$eN&!ion&l In!ern&l Re'enue .o"e (&s 'e!oe" 7y !$e Presi"en! On !$e o!$er $&n"?!$e ,IR m&in!&ins !$&! Se%!ion 92 (&s no! en!irely 'e!oe" 7u! merely !$e (or"s

F$o!els? mo!els? res!$ouses on !$e 8roun" !$&! i! mi8$! res!r&in !$e "e'elo3men! o#$o!els ($i%$ is essen!i&l !o !$e !ourism in"us!ry

Rule on !$e %on#li%!in8 %on!en!ions

S455ESTED ANSWER: The BIR s 'orre't. The n'l$son of hotels) motels)and restho$ses are 'onsdered as tems "thn the meann+ of no. 2/3) Se'. /=) Art. VI ofthe ,?= (onstt$ton that) the Presdent shall ha!e the &o"er to !eto any &art'$lar temor tems n an a&&ro&raton) re!en$e) or tarff bll) b$t the !eto shall not affe't the tem ortems to "h'h he does not ob0e't.

In the 'ase of (ommssoner of Internal Re!en$e !. (o$rt of Ta% A&&eals and6anla 5olf (o$ntry (l$b) 5.R. No. H=H/,) 6ay ,H) , t "as held that hotels)

motels and restho$ses are 'onsdered as tems "h'h the Presdent has the &o"er to !eto.An tem n a re!en$e bll does not refer to an entre se'ton m&osn+ a &art'$lar

1nd of ta%) b$t rather to the s$b0e't of the ta% and the ta% rate. In the &orton of are!en$e bll "h'h a't$ally m&oses a ta%) a se'ton dentfes the ta% and en$merates the&ersons lable therefore "th the 'orres&ondn+ ta% rate.

To 'onstr$e the "ord tem as referrn+ to the "hole se'ton "o$ld te thePresdent*s hand n 'hoosn+ ether to a&&ro!e the "hole se'ton at the e%&ense of alsoa&&ro!n+ a &ro!son theren "h'h he deems $na''e&tableor !eto the entre se'ton atthe e%&ense of fore+on+ the 'olle'ton of the 1nd of ta% alto+ether.

The e!l "h'h "as so$+ht to be &re!ented n +!n+ the Presdent the &o"er todsa&&ro!e tems n a re!en$e bll "o$ld be &er&etrated rendern+ that &o"er n$tle.

2(ommon"ealth e%. rel. El1n !. Barnett) , Pa. ,>,) @@ ;RA ??/ 2,,


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&roblem b$t that of the rel+o$s 'on+re+aton "h'h s not a non-&roft non-sto'1ed$'atonal nstt$ton.

*** 26 M.A (&s es!&7lis$e" &s F& (el#&re? e"u%&!ion&l &n" %$&ri!&7le non=3ro#i! %or3or&!ion e&rne" &n in%ome o# PB00 !$ous&n" #rom le&sin8 ou! & 3or!iono# i!s 3remises !o sm&ll s$o3 o(ners? li>e res!&ur&n!s &n %&n!een o3er&!ors? &n" P99!$ous&n" #rom 3&r>in8 #ees %olle%!e" #rom non=mem7ers I! (&s su7@e%!e" !o &n

&ssessmen! #or non=3&ymen! o# in%ome !&es on !$e #ore8oin8 in%omeM.A %l&ims !$&! i! is !& eem3! %l&imin8 #or !$e re&son !$&! !$e le&sin8 !o

sm&ll s$o3 o(ners &n" !$e o3er&!ion o# !$e 3&r>in8 lo! &re re&son&7ly ne%ess&ry #or!$e &%%om3lis$men! o# i!s o7@e%!i'es I! 3remises i!s %l&im on !$e 3ro'isions o# !$e1JC .ons!i!u!ion Is !$e in%ome "eri'e" #rom ren!&ls o# !$e re&l 3ro3er!y su7@e%! !oin%ome !& 4 Re&son ou! your &ns(er

S455ESTED ANSWER: es) the n'ome s s$b0e't to n'ome ta%. The NIR(re'o+n8es the e%em&ton from ta% of the n'omes of '!' lea+$es or or+an8atons notor+an8ed for &roft b$t o&erated e%'l$s!ely for the &romoton of so'al "elfare) as "ellas 'l$bs or+an8ed and o&erated e%'l$s!ely for &leas$re) re'reaton) and other non-

&roftable &$r&oses "here no &art of the net n'ome n$res to the beneft of any &r!atesto'1holder or member.

o"e!er) the ta% e%em&ton so re'o+n8ed does not flo" to n'ome of "hate!er1nd and 'hara'ter of the fore+on+ or+an8atons from any of ther &ro&ertes) real or&ersonal) or from any of ther a't!tes 'ond$'ted for &roft) re+ardless of the ds&ostonmade of s$'h n'ome) "h'h shall be s$b0e't to n'ome ta%es.

9$rthermore) the 'onstt$tonal ta% e%em&tons refer only to real &ro&erty that area't$ally) dre'tly and e%'l$s!ely $sed for rel+o$s) 'hartable or ed$'atonal &$r&oses)and that the only 'onstt$tonally re'o+n8ed e%em&ton from ta%aton of re!en$es arethose earned by non-&roft) non-sto'1 ed$'atonal nstt$tons "h'h are a't$ally) dre'tlyand e%'l$s!ely $sed for ed$'atonal &$r&oses. 6(A s not an ed$'atonal nstt$ton

embra'ed $nder ths &art'$lar 'on'e&t. 2(ommssoner of Internal Re!en$e !. (o$rt ofA&&eals) et al.) /? S(RA ? e"u%&!ion&lins!i!u!ion I! o(ns & one $e%!&re lo!? one=$&l# o# ($i%$ is o%%u3ie" 7y !$e s%$ool

%&m3us &n" !$e o!$er $&l# is le&se" !o A8ri=/&rms? In%? #or use &s & #lo(er 8&r"en !omee! !$e e3or! re;uiremen!s o# A8ri=/&rms? In% T$e ren!&ls %olle%!e" #rom A8ri=

/&rms &re use" 7y Ase&n !o 3&y #or !$e s&l&ries o# i!s s%$ool !e&%$ers An!i%i3&!in8$i8$er e3en"i!ures #or o3er&!in8 !$e s%$ool "urin8 !$e s%$ool ye&r 1C=J? !$es%$ool in%re&se" i!s !ui!ion #ees &n" s!&r!e" %olle%!in8 !$e in%re&se" #ees &s e&rly &sA3ril 1C T$e &"'&n%e" %olle%!ions (ere in !$e me&n!ime "e3osi!e" in & lo%&l7&n> ($ere i! e&rns in!eres! An in!ern&!ion&l or8&ni)&!ion "on&!e" USQ10?00000on !$e soli!&ry %on"i!ion !$&! i! s$oul" 7e use" !o u38r&"e !$e s&l&ries o# !$e s%$ool

&"minis!r&!ors T$e s%$ool &lso (&n!s !o im3or! some %om3u!ers #or !$e use o# i!ss!u"en!s

ou &re no( %onsul!e" !o e3l&in !$e !& im3li%&!ions o# !$e &7o'e &n" 8i'eyour &"'i%e W$&! s$&ll you s&y 4

S455ESTED ANSWER:a. The s'hool s e%em&t from the &ayment of real &ro&erty ta%es on the one-half

&orton of ts one he'tare lot "h'h s ben+ $sed as the s'hool 'am&$s.Ths s so be'a$se the same s a't$ally) dre'tly and e%'l$s!ely $sed for ed$'atonal&$r&oses.

A+r-9arms s s$b0e't to the &ayment of real &ro&erty ta%es on the remann+ one-

half that t leases from Asean for the reason that the sad &orton s $sed for 'ommer'al&$r&oses and not a't$ally) dre'tly and e%'l$s!ely for ed$'atonal &$r&oses. Asean*s ta%e%em&ton &r!le+e does not flo" to A+r-9arms be'a$se real &ro&erty ta%aton s basedon $se and not on o"nersh&. Whle t s tr$e that the rental n'ome s de!oted toed$'atonal &$r&oses) t has no bearn+ n the 'ase as t s the land that sho$ld the a't$ally)dre'tly and e%'l$s!ely $sed for ed$'atonal &$r&oses.

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14/64

b. The n'ome der!ed from the t$ton fees s e%em&t from the n'ome ta%es asthese are to be a't$ally) dre'tly and e%'l$s!ely $sed for ed$'atonal &$r&oses ben+de!oted to meet the n'reased s'hool o&eratonal e%&endt$res.

'. The &ass!e n'ome n the form of nterests on ban1 de&osts may be e%em&tfrom n'ome ta%es and the "thholdn+ ta%es of /L f they are refle'ted on the s'hool*sann$al nformaton ret$rns and d$ly a$dted fnan'al statements) s$&&orted by a'ertf'aton from the de&ostory ban1 as to the amo$nt of nterest n'ome earned from&ass!e n!estments not s$b0e't to the /L fnal "thholdn+ ta%) a resol$ton of thes'hool*s Board of Tr$stees on the &ro&osed &ro0e'ts to be f$nded o$t of the moneyde&osted n the ban1) and a 'ertf'aton of a't$al $tl8aton of sad nterest n'ome fora't$al) dre't and e%'l$s!e $se for ed$'atonal &$r&oses. 29nan'e De&artment Order No.,H-@) ss$ed No!ember /H) ,@ amendn+ De&artment Order No. ,no( !$e "is!in%!ions 7e!(een & !& &n" & "e7!W$&! &re !$e "is!in%!ions 7e!(een & !& &n" & "e7! 4

S455ESTED ANSWER: It s m&ortant to 1no" the dstn'tons be'a$se non-&ayment of a ta% 2e%'e&t a &oll ta%3 'o$ld s$b0e't a &erson to m&rsonment "hle no&erson 'o$ld be m&rsoned for non-&ayment of a debt. 9$rthermore) a debt 'o$ld be

'om&ensated by another debt) b$t a debt or another ta% 'o$ld not be 'om&ensated for ata% n a''ordan'e "th the lfeblood do'trne. *** Dstn'tons bet"een a ta% and a debt:

a. BASIS. Ta% s based on la" WI;E debt s based on 'ontra't or 0$d+ment.b. 9AI;4RE TO PA. 9al$re to &ay a ta% 2e%'e&t a &oll ta%3 may res$lt n

m&rsonment WI;E there s no m&rsonment for fal$re to &ay a debt.'. 6ODE O9 PA6ENT. Ta% s +enerally &ayable n money WI;E debt may

be &ayable n money) &ro&erty or ser!'es.d. ASSI5NABI;IT. A ta% s not ass+nable WI;E a debt s ass+nable.e. INTEREST. A ta% does not dra" nterest $nless deln#$ent WI;E a debt

dra"s nterest f st&$lated or delayed.f. A4TORIT. Ta%es are m&osed by &$bl' a$thorty WI;E debt 'an be

m&osed by &r!ate nd!d$als.+. PRES(RIPTION. Pres'r&t!e &erods for ta% are determned $nder the NIR(

WI;E debt) $nder the (!l (ode.

2B Are !$ere "is!in%!ions 7e!(een & !& &n" & li%ense #ee 4 W$y is i!im3or!&n! !o >no( !$e "is!in%!ions 4

S455ESTED ANSWERS: The follo"n+ are the dstn'tons bet"een a ta% and al'ense fee:

a. P4RPOSE:A ta% s m&osed for re!en$e &$r&oses WI;E a l'ense fee sm&osed for re+$latory &$r&oses.

b. BASIS: A ta% s m&osed $nder the &o"er of ta%aton WI;E a l'ense fee sm&osed $nder &ol'e &o"er.

'. A6O4NT: There s no lmt as to the amo$nt of a ta% WI;E the amo$nt ofl'ense fee that 'o$ld be 'olle'ted s lmted to the 'ost of the l'ense and the e%&enses of&ol'e s$r!ellan'e and re+$laton.

d. TI6E O9 PA6ENT: Ta%es are normally &ad after the start of a b$snessWI;E a l'ense fee before the 'ommen'ement of b$sness.

e. E99E(T O9 NON-PA6ENT: 9al$re to &ay a ta% does not ma1e theb$sness lle+al WI;E fal$re to &ay a l'ense fee ma1es the b$sness lle+al.

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15/64

f. S4RRENDER: Ta%es ben+ the lfeblood of the state) 'annot be s$rrenderede%'e&t for la"f$l 'onsderaton WI;E a l'ense fee may be s$rrendered "th or "tho$t'onsderaton.

It s m&ortant to 1no" the dstn'tons be'a$se the lmtatons for one may not bea&&led to the other e%'e&t n the nstan'e "here re+$latory ta%es are m&osed th$s) the&o"er to ta% s e%er'sed 'o0ontly "th the &ol'e &o"er. 9$rthermore) e%em&ton fromta%es does not n'l$de e%em&ton from the &ayment of l'ense fees and !'e-!ersa.

NOTES AND (O66ENTS: Re'all the dstn'tons bet"een the &o"er ofta%aton and &ol'e &o"er "th res&e't to: P$r&ose) amo$nt) 'om&ensaton) &ro&ertyta1en) "hat s done "th the &ro&erty ta1en) relaton to the non-m&arment 'la$se.

HE COUR OF AX APPEALS AND AX REMEDIES2C W$&! is !$e .our! o# T& A33e&ls 4 W$&! is !$e n&!ure o# !$e .our! o#

T& A33e&ls 4 W$y (&s i! %re&!e" 4S455ESTED ANSWER:

a. The (o$rt of Ta% A&&eals s the s&e'al ta% 'o$rt 'reated $nder Re&$bl' A'tNo. ,,/@ 'om&osed of a Presdn+ $d+e and T"o Asso'ate $d+es) a&&onted by thePresdent of the Phl&&nes from nomnees of the $d'al and Bar (o$n'l.

b. It s not a mere admnstrat!e a+en'y or trb$nal b$t a re+$lar 'o$rt !ested "the%'l$s!e a&&ellate 0$rsd'ton o!er 'ases arsn+ $nder the Natonal Internal Re!en$e(ode and the Tarff and ($stoms (ode. *** '. The (o$rt of Ta% A&&eals "as 'reated:

,3 To &re!ent delay n the ds&oston of ta% 'ases by the then (o$rts of 9rst Instan'e 2no" RT(s3) n !e" of the ba'1lo+ of '!l) 'rmnal) and 'adast- ral 'ases a''$m$latn+ n the do'1ets of s$'h 'o$rtsF and

/3 To ha!e a body "th s&e'al 1no"led+e "h'h ordnary $d+es of the then (o$rts of 9rst Instan'e 2no" RT(s3) are not l1ely to &ossess) th$s &ro- !dn+ for an ade#$ate remedy for a s&eedy determnaton of ta% 'ases.

*** 2J W$&! is !$e @uris"i%!ion o# !$e .our! o# T& A33e&ls 4

S455ESTED ANSWER:a. The (o$rt of Ta% A&&eals has 0$rsd'ton o!er de'sons of the (ommssoner

of Internal Re!en$e o!er:,3 (ases n!ol!n+:

a3 Ds&$ted assessmentsFb3 Ref$nd of nternal re!en$e ta%es) fees or other 'har+esF'3 Penaltes m&osed n relaton thereto.

/3 Other matters arsn+ $nder:

a3 The Natonal Internal Re!en$e (ode) orb3 Other la" or &art of la" admnstered by the B$rea$ of Internal

Re!en$e.The a&&eal to the (o$rt of Ta% A&&eals m$st be fled "thn


16/64

,3 Where the (ommssoner has not a'ted on the ds&$ted assessment aftera &erod of ,? days from s$bmsson of 'om&lete s$&&ortn+ do'$ments) theta%&ayer has a &erod of


17/64

S455ESTED ANSWER: The follo"n+ are the +eneral methods de!elo&ed bythe B$rea$ of Internal Re!en$e for re'onstr$'tn+ a ta%&ayer*s n'ome:

a. Per'enta+e method. The 'om&$ted amo$nt of re!en$es based on the&er'enta+e 'om&$taton s 'om&ared to the amo$nt of re!en$es refle'ted on the ret$rn.The &er'enta+es $sed may be obtaned from the ta%&ayer) nd$stry &$bl'aton) &roryear*s a$dt res$lts) or thrd &artes. The 'om&arson "ll &ro!de an nd'aton on the&ossblty of re!en$e ben+ $nderstated.

Amon+ the s+nf'ant ratos and trends to be analy8ed are the &er'enta+e mar1-$&)+ross &rofts rato or +ross mar+n &er'enta+e) &roft mar+n) total assets t$rno!er) andn!entory t$rno!er.

b. Net "orth method. A method of re'onstr$'tn+ n'ome "h'h s based on thetheory that f the ta%&ayer*s net "orth has n'reased n a +!en year n an amo$nt lar+erthan hs re&orted n'ome) he has $nderstated hs n'ome for that year. The net "orth on af%ed startn+ date s 'om&ared "th the net "orth on a f%ed endn+ date. Any n'rease nnet "orth s &res$med to be n'ome not de'lared for ta% &$r&oses.

The dff'$lty of establshn+ the o&enn+ net "orth of a ta% &ayer has led to the(ohan R$le "h'h means the $se estmates or a&&ro%matons of the amo$nt of 'ash and

other asserts "here the ta%&ayer la'1s ade#$ate re'ords.'. Ban1 de&ost method. The ban1 re'ords of the ta%&ayer are analy8ed and the

BIR estmates n'ome on the bass of the total ban1 de&osts after elmnatn+ non-n'ometems. Ths method stands on the &remse that de&osts re&resent ta%able n'ome $nlessother"se e%&laned as ben+ non-ta%able tems. Ths method may be $sed only "here theBIR has been le+ally allo"ed a''ess to the ta%&ayer*s ban1 re'ords.

d. (ash e%&endt$re method. Ths method ass$mes that the e%'ess of a ta%&ayer*se%&endt$res d$rn+ the ta% &erod o!er hs re&orted n'ome for that &erod s ta%able tothe e%tent not ds&ro!ed other"se.

e. 4nt and !al$e method. The determnaton or !erf'aton of +ross re'e&ts maybe 'om&$ted by a&&lyn+ &r'e and &roft f+$res to the 1no"n as'ertanable #$alty of

b$sness of the ta%&ayer. 9or e%am&le) n order to determne the +ross re'e&ts of a &88a&arlor) m$lt&ly the &o$nds of flo$r $sed by the n$mber of &88as &er &o$nd "h'h n t$rn"o$ld then be m$lt&led by the a!era+e &r'e &er &88a.

f. Thrd &arty nformaton or a''ess to re'ords method. The BIR may re#$rethrd &artes) &$bl' or &r!ate to s$&&ly nformaton to the BIR.

+. S$r!ellan'e and assessment method. 2(ha&ter CIII. Indre't A&&roa'h toIn!est+aton) andboo1 on A$dt Pro'ed$res and Te'hn#$es Vol$me I) &&. >?-=H3

*** 61 T$e ,IR "is%o'ere" !$&! El'ie? & 7usiness(om&n? "i" no! #ile $er in%ome!& re!urns #or !$e !&&7le ye&rs 1J &n" 1 A 3re=&ssessmen! no!i%e #or 7&%>!&es (&s !$en issue" in !$e &moun! o# P2 million ($i%$ ul!im&!ely m&!ure" in!o &n&ssessmen! no!i%e T$e ,IR &rri'e" &! !$e &""i!ion&l !& "ue !er usin8 !$e Fne!(or!$ me!$o" &n" &%%ess !o El'ie5s 3ur%$&ses #rom $er su33liers o# r&( m&!eri&ls

S$e no( "is3u!es !$e &ssessmen! #or l&%> o# le8&l 7&sis 7e%&use o# !$e use o# !$e Fne!(or!$ ($i%$ is no! &u!$ori)e" un"er !$e T& .o"e? &n" #or 'iol&!ion o# $er

%ons!i!u!ion&l ri8$!s ($en $er 3ur%$&se re%or"s (ere &%%esse" #rom $er su33liersRule on $er "is3u!e

S455ESTED ANSWER: El!e*s 'ontentons are bereft of mert. Sn'e El!e ddnot fle her n'ome ta% ret$rns) "h'h re&orts are re#$red by la" as a bass forassessment) then the BIR (ommssoner shall assess the ta% on the best e!den'e a!alable.The BIR (ommssoner s a$thor8ed to se'$re re'ords from &$bl' or &r!ate enttes toassst hm n the assessment. 9$rrthermore) the BIR may $se s$'h method as n theo&non of the (ommssoner 'learly refle'ts the n'ome.

NOTES AND (O66ENTS:a. 5eneral R$le. The ta%able n'ome shall be 'om&$ted $&on the bass of the

ta%&ayer*s ann$al a''o$ntn+ &erod 2fs'al year or 'alendar year) as the 'ase may be3 na''ordan'e "th the method of a''o$ntn+ re+$larly em&loyed n 1ee&n+ the boo1s ofs$'h ta%&ayerF b$t f no s$'h method of a''o$ntn+ has been so em&loyed) or f themethod em&loyed does not 'learly refle't the n'ome) the 'om&$taton shall be na''ordan'e "th s$'h method as n the o&non of the (ommssoner 'learly refle'ts then'ome. 2Se'. H


18/64

b. 9al$re to S$bmt Re#$red Ret$rns) Statements) Re&orts or Other Do'$ments.When a re&ort re#$red by la" as a bass for the assessment of any natonal nternalre!en$e ta% shall not be forth'omn+ "thn the tme f%ed by la"s or r$les and re+$latonsor "hen there s reason to bele!e that any s$'h re&ort s false) n'om&lete or erroneo$s)the (ommssoner shall assess the &ro&er ta% on the best e!den'e obtanable.

In 'ase a &erson fals to fle a re#$red ret$rn or other do'$ment at the tme&res'rbed by la") or "llf$lly or other"se fles a false or fra$d$lent ret$rn or otherdo'$ment) the (ommssoner shall ma1e or amend the ret$rn from hs o"n 1no"led+e andfrom s$'h nformaton as he 'an obtan thro$+h testmony or other"se) "h'h shall beprima facie'orre't and s$ff'ent for all le+al &$r&oses. Se'. > 2B3) NIR( of ,= *** '. Po"er of the (ommssoner to Obtan Informaton. In as'ertann+ the'orre'tness of any ret$rn) or n ma1n+ a ret$rn "hen none has been made) or ndetermnn+ the lablty of a &erson for any nternal re!en$e ta%) or n 'olle'tn+ any s$'hlablty) or n e!al$atn+ ta% 'om&lan'e) the (ommssoner s a$thor8ed: %%%

To obtan on a re+$lar bass from any &erson other than the &erson "hose nternalre!en$e ta% lablty s s$b0e't to a$dt or n!est+aton) or from any off'e or off'er of thenatonal and lo'al +o!ernments) +o!ernment a+en'es and nstr$mentaltes n'l$dn+ the

Ban+1o Sentral n+ Pl&nas and +o!ernment-o"ned or 'ontrolled 'or&oratons) anynformaton s$'h as) b$t not lmted to) 'osts and !ol$me of &rod$'ton) re'e&ts or salesand +ross n'omes of ta%&ayers) and the names ) addresses) and fnan'al statements of'or&oratons) m$t$al f$nd 'om&anes) ns$ran'e 'om&anes) re+onal o&eratn+head#$arters or m$ltnatonal 'om&anes) 0ont a''o$nts) asso'atons) 0ont !ent$res or'onsorta and re+stered &artnersh&s) and ther membersF %%% Se'. @ 2B3) NIR( of,=3

62 W$&! is & 3re=&ssessmen! no!i%e &n" ($&! is i!s im3or!&n%e 4S455ESTED ANSWER: A &re-assessment not'e s a a letter sent by the

B$rea$ of Internal Re!en$e to a ta%&ayer as1n+ hm to e%&lan "thn a &erod of ffteen

2,@3 days from re'e&t "hy he sho$ld not be the s$b0e't of an assessment not'e.As a +eneral r$le) the BIR 'o$ld not ss$e an assessment not'e "tho$t frst

ss$n+ a &re-assessment not'e be'a$se t s &art of the d$e &ro'ess r+hts of a ta%&ayer tobe +!en not'e n the form of a &re-assessment not'e) and for hm to e%&lan "hy hesho$ld be the s$b0e't of an assessment not'e. ***NOTES AND (O66ENTS: Ins!&n%es ($ere & 3re=&ssessmen! no!i%e is no!re;uire" 7e#ore & no!i%e o# &ssessmen! is sen! !o !$e !&3&yer:

a. When the fndn+ for any def'en'y ta% s the res$lt of mathemat'al error n the'om&$taton of the ta% as a&&earn+ on the fa'e of the ret$rnF or

b. When a ds're&an'y has been determned bet"een the ta% "thheld and theamo$nt a't$ally remtted by the "thholdn+ a+entF or

'. When a ta%&ayer o&ted to 'lam a ref$nd or ta% 'redt of e%'ess 'redtable"thholdn+ ta% for a ta%able &erod "as determned to ha!e 'arred o!er anda$tomat'ally a&&led the same amo$nt 'lamed a+anst the estmated ta% labltes for theta%able #$arter or #$arters of the s$''eedn+ table yearF or

d. When the e%'ess ta% d$e on e%'sable art'les has not been &adF ore. When an art'le lo'ally &$r'hased or m&orted by an e%em&t &erson) s$'h as)

b$t not lmted to !eh'les) 'a&tal e#$&ment) ma'hneres and s&are &arts) has been sold)trade or transferred to non-e%em&t &ersons. 2Se'. //?) NIR( of ,=3

66 On !$e 7&sis o# & Le!!er o# Au!$ori!y? #or !$e e&min&!ion o# !$e 7oo>s o#

&%%oun!s &n" o!$er &%%oun!in8 re%or"s o# P&s%or Re&l!y &n" +e'elo3men!.or3or&!ion DPR+.? ,IR e&miners re%ommen"e" !$e issu&n%e o# &n &ssessmen!

no!i%e in !$e &moun!s o# PC million &n" P 6 million #or !$e ye&rs 1JB &n" 1JCres3e%!i'ely

On M&r%$ 1? 1? !$e ,IR #ile" & %rimin&l %om3l&in! (i!$ !$e +e3&r!men!o# -us!i%e &8&ins! PR+.? i!s Presi"en! &n" Tre&surer &lle8in8 e'&sion o# !&es in !$e!o!&l &moun! o# P10 million T$is (&s su33or!e" 7y &n #i"&'i!=re3or! o# !$ee&miners "e!&ilin8 !$e %om3u!&!ion o# !$e &lle8e" !& e'&sion PR+.? i!s

Presi"en! &n" Tre&surer #ile" &n Ur8en! Re;ues! #orRe%onsi"er&!ionRein'es!i8&!ion "is3u!in8 !$e !& &ssessmen! &n" !& li&7ili!y On

,?


19/64

M&r%$ 26? 1? PR+. &n" i!s Presi"en! &n" Tre&surer re%ei'e" & su73oen& in%onne%!ion (i!$ !$e %rimin&l %om3l&in! #ile" 7y !$e ,IR &8&ins! !$em

In & le!!er "&!e" M&y 1C? 1? !$e .ommissioner "enie" !$e ur8en! re;ues!#or re%onsi"er&!ionrein'es!i8&!ion #ile" 7y PR+. &n" i!s o##i%ers on !$e 8roun" !$&!#orm&l &ssessmen! $&s &s ye! no! 7een issue" 7y !$e .ommissioner

+o you &8ree (i!$ !$e "e%ision o# !$e .ommissioner 4 E3l&in 7rie#lyS455ESTED ANSWER: es) the affda!t-re&ort of the e%amners does not

'onstt$te an assessment that may be the s$b0e't of a moton forre'onsderatonren!est+aton. The affda!t-re&ort merely 'ontaned a 'om&$taton ofthe labltes. It dd not state a demand or a &erod for &ayment. It "as not addressed tothe ta%&ayers b$t to the De&artment of $st'e.

That the affda!t-re&ort 'ontaned detals of the ta% labltes does not ipso factoma1e the same an assessment. Its &$r&ose "as merely to s$&&ort the 'rmnal 'om&lantfor assessment. (learly) t "as not meant to be a not'e of the ta% d$e and a demand forthe &ayment thereof.

The fa't that the 'om&lant tself "as s&e'f'ally dre'ted and sent to theDe&artment of $st'e and not to the ta%&ayer sho"s that the ntent of the BIR "as to fle

a 'rmnal 'om&lant for ta% e!ason) not to ss$e an assessment. Altho$+h the re!en$eoff'ers re'ommended the ss$an'e of an assessment) the 'ommssoner nstead o&ted tofle a 'rmnal 'om&lant. What "as re'e!ed by the ta%&ayer "as not'e of the fln+ ofthe 'rmnal 'ase not a not'e that the BIR had made an assessment. 2(ommssoner ofInternal Re!en$e !. Pas'or Realty and De!elo&ment (or&oraton) et al.) 5.R. No.,/?


20/64

from ds'o!ery of the fal$re to fle the ta% ret$rn or ds'o!ery of falsty or fra$d n theret$rn.

*** 69 W$&! is me&n! 7y F@eo3&r"y &ssessmen! 4S455ESTED ANSWER: A deln#$en'y ta% assessment "h'h "as assessed

"tho$t the beneft of 'om&lete or &artal a$dt by an a$thor8ed re!en$e off'er) "ho hasreason to bele!e that the assessment and 'olle'ton of a def'en'y ta% "ll be 0eo&ard8edby delay be'a$se of the ta%&ayer*s fal$re to 'om&ly "th the a$dt and n!est+atonre#$rements to &resent hs boo1s of a''o$nts andor &ertnent re'ords) or to s$bstantateall or any of the ded$'tons) e%em&tons) or 'redts 'lamed n hs ret$rn. Se'. -/3

NOTES AND (O66ENTS:a. -eo3&r"y &ssessmen! s an nd'aton of the do$btf$l !aldty of the

assessment) hen'e t may be s$b0e't to a 'om&romse. Se'. -/ ***b. Re;uiremen!s #or '&li"i!y o# #orm&l le!!er o# "em&n" &n" &ssessmen!no!i%e. The letter of demand 'alln+ for &ayment of the ta%&ayer*s def'en'y ta% or ta%es

shall state the fa'ts) the la") r$les and re+$latons) or 0$rs&r$den'e on "h'h theassessment s based) other"se) the formal letter of demand and assessment not'e shall be!od. 2Se'.


21/64

;a" on &res'r&ton sho$ld be lberally 'onstr$ed n fa!or of the ta%&ayer 9or the&$r&ose of safe+$ardn+ ta%&ayers from an $nreasonable e%amnaton) n!est+aton orassessment) o$r ta% la" &ro!des a stat$te of lmtaton on the 'olle'ton of ta%es.

Th$s) the la" on &res'r&ton) ben+ a remedal meas$re) sho$ld be lberally'onstr$ed n order to afford s$'h &rote'ton. As a 'orollary) the e%'e&tons to the la"on &res'r&ton sho$ld &erfor'e be str'tly 'onstr$ed. 2(ommssoner of Internal Re!en$e!. B.9. 5oodr'h Phls.) In'.) et al.) 5.R. No. ,H,=,) 9ebr$ary /H) ,3

Re;uiremen!s #or '&li"i!y o# !&3&yer5s 3ro!es!. The ta%&ayer shall state thefa'ts) the a&&l'able la") r$les and re+$latons) or 0$rs&r$den'e on "h'h hs &rotest sbased) other"se) hs &rotest shall be 'onsdered !od and "tho$t for'e and effe't. Iftherer are se!eral ss$es n!ol!ed n the ds&$ted assessment and the ta%&ayer fals to statethe fa'ts) the a&&l'able la") r$les and re+$latons) or 0$rs&r$den'e n s$&&ort of hs&rotest a+anst some of the se!eral ss$es on "h'h the assessment s based) the same shallbe 'onsdered $nds&$ted ss$e or ss$es) n "h'h 'ase) the ta%&ayer shall be re#$red to&ay the 'orres&ondn+ def'en'y ta% or ta%es attrb$table thereto. 2Se'. e! '&lue &n" !$e &%!u&l 3ur%$&se 3ri%e? & !&&7le "on&!ionSu7se;uen!ly? on A3ril ? 1J1 !$e ,IR in%re&se" !$e &ssessmen!

W&s !$ere & F#&lse &n" #r&u"ulen! re!urn (i!$in !$e %on!e! o# !$e T& .o"e($i%$ (oul" &llo( &ssessmen! 7eyon" !$e #i'e ye&r un"er !$e 3resen! T& .o"e?!$ree D6 ye&rs 4

S455ESTED ANSWER: No) the fa't that B.9. 5oodr'h sold the &ro&erty for a&r'e lo"er than ts de'lared far mar1et !al$e dd not 'onstt$te a false ret$rn "h'h'ontans "ron+ nformaton d$e to msta1e) 'arelessness or +noran'e. It s &ossble thatreal &ro&erty may be sold for less than ade#$ate 'onsderaton for a bona fde b$sness&$r&ose) n s$'h e!ent) the sale remans an arms len+th transa'ton. In the 'ase at bar)B.9. 5oodr'h "as tryn+ to mnm8e ts loss be'a$se of the e%&raton of the PartyAmendment. Besdes) the /@ year lease "as another 'onsderaton.

B.9. 5oodr'h de'lared the sale n ts ,=H ret$rn s$bmtted to the BIR Wthnthe &res'r&t!e &erod) the BIR 'o$ld ha!e made the assessment be'a$se the de'lared farmar1et !al$e of sad &ro&erty "as of &$bl' re'ord.

That &art of the sale transa'ton "as a't$ally a donaton) dd not erase the fa't thatthe n'ome had already been re&orted B.9. 5oodr'h already re&orted ts n'ome by fln+an n'ome ta% ret$rn. E!en tho$+h a donor*s ta% s dfferent from 'a&tal +ans ta%) a ta%on the +an from the sale of the ta%&ayer*s &ro&erty formn+ &art of 'a&tal assets) the ta%ret$rn fled by B.9. 5oodr'h to re&ort ts n'ome for the year ,=H "as s$ff'ent'om&lan'e "th the le+al re#$rement to fle a ret$rn.

The BIR*s o!ers+ht on the ss$e of &res'r&ton 'annot &re0$d'e the ta%&ayer.REASON: The &res'r&t!e &erod "as &re'sely ntended to +!e the ta%&ayers &ea'e ofmnd. 2(ommssoner of Internal Re!en$e !. B.9. 5oodr'h Phls.) In'.) et al.) 5.R. No.,H,=,) 9ebr$ary /H) ,3

6C. Assessmen! &n" re#un" %&ses %oul" no! 7e %onsoli"&!e". Reason:;feblood do'trne. If there a &endn+ assessment) ref$nd sho$ld not be +ranted.

GGG6J 91 non=li#e insur&n%e %or3or&!ions or8&ni)e" &n" eis!in8 un"er !$e l&(so# !$e P$ili33ines or8&ni)e" & 3ool o# m&%$inery insurers #or !$e 3ur3ose o# en!erin8in!o & Kuo!& S$&re Reinsur&n%e Tre&!y &n" & Sur3lus Reinsur&n%e Tre&!y (i!$ !$eMun%$ener Ru%>'ersi%$erun8s=Gessels%$! DMuni%$ #or 7re'i!y? & non=resi"en!#orei8n insur&n%e %or3or&!ion

On A3ril 19? 1CB !$e 3ool su7mi!!e" & #in&n%i&l s!&!emen! &n" #ile" &nFIn#orm&!ion Re!urn o# Or8&ni)&!ion Eem3! #rom In%ome T& #or !$e ye&r

/,


22/64

en"in8 1C? on !$e 7&sis o# ($i%$ !$e 3ool (&s &ssesse" "e#i%ien%y %or3or&!ein%ome !& o# P1J million &n" (i!$$ol"in8 !& in !$e &moun! o# P1C million &n"PJ !$ous&n" &n" !o !$e 3ool on "i'i"en"s 3&i" !o Muni%$ &n" !$e 3ool mem7ersres3e%!i'ely

T$e 3ool r&ises !$e #ollo(in8 issues ($y !$ey s$oul" no! 7e su7@e%! !o !$e"e#i%ien%y !&es:

1 T$ey $&'e no! #orme" &n unre8is!ere" 3&r!ners$i3 !o 7e !re&!e" &s &

%or3or&!ion #or !& 3ur3oses)an$ary /) ,3

(a&tal s a f$nd of &ro&erty e%stn+ at an nstant of tme WI;E n'ome s thatflo" of ser!'es rendered by that 'a&tal by the &ayment of money from t or any otherbeneft rendered by a f$nd of 'a&tal n relaton to s$'h f$nd thro$+h a &erod of tme.

b. (a&tal s "ealth WI;E n'ome s the ser!'e of "ealthF and'. (a&tal s the tree WI;E n'ome s the fr$t. 26adr+al !. Rafferty)


32/64

of Internal Re!en$e !. (o$rt of A&&eals) et al.) 5.R. No. ,?@=>) an$ary /) , 2theANS(OR 'ase3) "here the &resent &ro!sons of the Ta% (ode on transa'ton ta% Se'.,/= 2A3) NIR( of ,=) and 'a&tal +ans ta% fnd a&&l'aton. The only 'on'e&ts thatsho$ld be retaned s the defnton of redem&ton) and the a&&l'ablty of the ANS(OR'ase 'on'e&t of redem&ton "here the shares of sto'1 that are redeemed are ordnaryassets. The ta% treatment of redem&ton of shares of sto'1) $nder the &resent &ro!sons ofthe Ta% (ode shall be ds'$ssed belo".

T& !re&!men! o# re"em3!ion 7y issuin8 %or3or&!ion o# s$&res o# s!o%> un"er!$e 3resen! 3ro'isions o# !$e T& .o"e? no! un"er !$e #ormer 3ro'isions o# !$e T&

.o"e &s in!er3re!e" in !$e ANS.OR %&se The ta% treatment "o$ld be de&endent $&onthe follo"n+ fa'tors:

a. The nat$re of the shares of sto'1 ben+ ds&osed of) "hether the shares are'a&tal assets or ordnary assetsF

b. Whether or not the shares of sto'1 are lsted and traded and lsted n the sto'1e%'han+e.

T&&7ili!y o# s&les? 7&r!er or e%$&n8e o# s$&res o# s!o%>s:a. Shares of sto'1 are %&3i!&l &sse!s &n" no! lis!e" &n" !r&"e" in !$e s!o%>

e%$&n8e Where the shares of sto'1 are 'a&tal assets be'a$se the seller s not en+a+edn the b$sness of b$yn+ and selln+ shares of sto'1 2a dealer n se'$rtes3) and not lstedand traded n the sto'1 e%'han+e) the sale s s$b0e't to a @L ta% on net 'a&tal +an noto!er P,). "hle the net 'a&tal +an o!er P,). s s$b0e't to a ta% of ,L.Note that the holdn+ &erod s not a&&led. The 'a&tal +ans ta% s an n'ome ta% be'a$sethe ta% falls $nder ttle II of the Ta% (ode) enttled) In'ome Ta%

b. Shares of sto'1 ($e!$er %&3i!&l or or"in&ry &sse!s 7u! &re lis!e" &n"!r&"e"n the sto'1 e%'han+e are s$b0e't to the transa'ton ta% of U of ,L of the +rossselln+ or transa'ton &r'e. The holdn+ &erod s not a&&led and the transa'ton ta% s nle$ of all n'ome ta%es that may be 'olle'ted.

'. Shares of sto'1 or"in&ry &sse!s 7u! no! lis!e" &n" !r&"e" in !$e s!o%>

e%$&n8e If the shares of sto'1 are ordnary assets be'a$se the seller s en+a+ed n theb$sness of b$yn+ and selln+ shares of sto'1 2dealer n se'$rtes3) the transa'ton shall bes$b0e't to n'l$son n the n'ome ta% ret$rn de&endn+ on 'ertan 'r'$mstan'es. Seeds'$sson on ta% treatment of redem&ton of shares of so'1 "here the shares that areredeemed are ordnary assets and not lsted and traded n the sto'1 e%'han+e.

T& !re&!men! o# re"em3!ion o# s$&res o# s!o%> ($ere !$e s$&res !$&! &rere"eeme" &re or"in&ry &sse!s &n" no! lis!e" &n" !r&"e" in !$e s!o%> e%$&n8e

Whether the transa'ton s to be s$b0e't to n'ome ta%aton or not "o$ld bede&endent $&on the nat$re and 'hara'ter of the shares of sto'1 that are the s$b0e't ofredem&ton.

If the so$r'e s the or+nal 'a&tal s$bs'r&tons $&on the establshment of the'or&oraton or from ntal 'a&tal n!estment n an e%stn+ enter&rse) the redem&ton tothe 'on'$rrent !al$e of a'#$ston s not s$b0e't to n'ome ta%aton) as t s not n'omeb$t a mere ret$rn of 'a&tal.

On the 'ontrary) f the redeemed shares are from sto'1 d!dend de'laratons otherthan as ntal 'a&tal n!estment) the &ro'eeds of the redem&ton s addtonal "ealth) for ts not merely a ret$rn of 'a&tal b$t a +an therefrom.

The test for ta%ablty therefor) as "o$ld ma1e the redem&ton essentallye#$!alent to the dstrb$ton of a ta%able d!dend) s "hether the redem&ton res$ltednto a flo" of "ealth. If no "ealth s real8ed from the redem&ton) there may not be ad!dend e#$!alen'e treatment. 2(ommssoner of Internal Re!en$e !. (o$rt of A&&eals)et al.) 5.R. No. ,?@=>) an$ary /) ,3

*** W$&! &re im3ro3erly &%%umul&!e" e&rnin8s 4S455ESTED ANSWER: These are the earnn+s or &rofts of a 'or&oraton

"h'h are &ermtted to a''$m$late nstead of ben+ d!ded by a 'or&oraton to tsshareholders for the &$r&ose of a!odn+ the n'ome ta% "th res&e't to ts shareholders orthe shareholders of another 'or&oraton. If the n'ome "ere d!ded and dstrb$ted) they"o$ld ha!e been ta%ed as d!dends.

NOTES AND (O66ENTS:


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reasonable a''$ra'y. Th$s t s the r+ht to re'e!e n'ome) and not the a't$al re'e&t) thatdetermnes "hen to n'l$de the amo$nt n +ross n'ome.

(onse#$ently) the follo"n+ are the re#$stes:,3 That the r+ht to re'e!e the n'ome m$st be !ald) $n'ondtonal and

enfor'eable) .e. not 'ontn+ent $&on f$t$re tmeF/3 The amo$nt m$st be reasonably s$s'e&tble of a''$rate estmateF and


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0. ;fe or health ns$ran'e and other non-lfe ns$ran'e &rem$ms or smlaramo$nts n e%'ess of "hat the la" allo"s. Se'.


36/64

re'e!n+ the benefts only f s$'h e%'ess s beyond the Pey&n" &%!ress Me88y e%$&n8e S$e 7ou8$! !$es$&res in 1J #or only P00?00000no(n su3erm&r>e!s you $o( !$eir 3&r!ners$i3 in%ome s$&ll7e !&e" in !$e li8$! o# !$e 3ro'isions o# !$e NIR. o# 1C W$&! &"'ise s$&ll you8i'e4

S455ESTED ANSWER:6an+ oe and hs &artners shall be ta%ed l1e a 'or&oraton. As defned $nder

Se'. // 2B3) of the NIR( of ,=) a 'or&oraton n'l$des &artnersh&s no matter ho"'reated or or+an8ed) b$t does not n'l$de +eneral &rofessonal &artnersh&. Sn'e "hat"as formed by 6an+ oe and hs &artners "as a b$sness &artnersh&) they sho$ld be'onsdered as ha!n+ formed a 'or&oraton for ta% &$r&oses.

Sn'e the &artnersh& "as or+an8ed and e%stn+ $nder Phl&&ne la") ts ta%ablen'ome shall be s$b0e't to the red$'ed rate of e! money (on #rom !$e &nnu&l r#le o# $er "e3osi!ory 7&n>

$ P9?00000 in!eres! e&rne" #rom $er !ime "e3osi! (i!$ & lo%&l 7&n>I P90?00000 "o(ry #rom $er 3ros3e%!i'e mo!$er=in=l&(? &n Ameri%&n

li'in8 in Ne( or>? USA? &s Wen"y (&s 8e!!in8 m&rrie" in 1@ P0?00000 ne! 3ro#i! #rom !$e s&le o# Primus .or3or&!ion s!o%>s ($i%$

(ere no! !r&"e" &! !$e P$il S!o%> E%$&n8eU3on !$e o!$er $&n"? Wen"y $&" !$e #ollo(in8 "is7ursemen!s:& P0?00000 le8&l #ees #or !$e or8&ni)&!ion o# FM%Wen"y5s Pi))&en &re& "e%l&re" 7y !$e Presi"en!o Sen!r&l n8 Pili3in&s< &n"

l P10?00000 ($i%$ Wen"y s3en! in o7ser'in8 !ren"s in !$e #&s!#oo"7usiness in !$e Uni!e" S!&!es &n" Euro3e

& W$i%$ o# !$e &7o'e in%ome i!ems s$oul" 7e re3or!e" 7y Wen"y on $er2000 In%ome T& Re!urn4 E3l&in

7 W$i%$ o# !$e &7o'e "is7ursemen!s &re 3ro3erly "e"u%!i7le in %om3u!in8!$e !&&7le in%ome o# Wen"y4 E3l&in

S455ESTED ANSWER:a. The follo"n+ are the n'ome tems to be re&orted by Wendy n her /

n'ome ta% ret$rn:,3 P@ mllon +ross re'e&ts from o&eraton of 6'Wendy*s P88a der!ed

as n'ome from self-em&loyment $nder se'. ,2,/3 Re!. Re+s. No. /-


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$n!erstes. The 4n!ersty of the Phl&&nes s a state $n!ersty 2Se'.


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/3 Sendn+ of 'olle'ton lettersF S(RA >>=3NOTES AND (O66ENTS: Rel&!e" 3&r!iesa. 6embers of the same famly. The famly of an nd!d$al shall n'l$de only hs

brothers and ssters 2"hether by the "hole or half-blood3) s&o$se) an'estors) and lnealdes'endantsF

b. An nd!d$al and a 'or&oraton more than ffty &er'ent 2@L3 n !al$e of theo$tstandn+ sto'1 of "h'h s o"ned) dre'tly or ndre'tly) by or for s$'h nd!d$alF

'. T"o 'or&oratons more than ffty &er'ent 2@L3 n !al$e of the o$tstandn+sto'1 of "h'h s o"ned) dre'tly or ndre'tly) by or for the same nd!d$alF

d. A +rantor and a fd$'ary of any tr$stF ore. The fd$'ary of a tr$st and the fd$'ary of another tr$st f the same &erson s a

+rantor "th res&e't to ea'h tr$stF or

f. A fd$'ary of a tr$st and a benef'ary of s$'h. Se'. 2B3) NIR( of ,=

C2 W$&! is me&n! 7y !$e F!& 7ene#i! rule 4 Illus!r&!e 7y e&m3leS455ESTED ANSWER: The re'o!ery of bad debts &re!o$sly allo"ed as

ded$'ton n the &re'edn+ year or years shall be n'l$ded as &art of the ta%&ayer*s +rossn'ome n the year of s$'h re'o!ery to the e%tent of the n'ome ta% beneft of sadded$'ton.

9or e%am&le: If n the year the ta%&ayer 'lamed ded$'ton of bad debts "rtten-off) he real8ed a red$'ton of the n'ome ta% d$e from hm on a''o$nt of the sadded$'ton) hs s$bse#$ent re'o!ery thereof from hs debtor shall be treated as a re'e&t ofreal8ed ta%able n'ome. (on!ersely) f the sad ta%&ayer dd not beneft from the

ded$'ton of the sad bad debt "rtten-off be'a$se t dd not res$lt to any red$'ton of hsn'ome ta% n the year of s$'h ded$'ton 2.e. "here the res$lt of hs b$sness o&eraton"as a net loss e!en "tho$t ded$'ton of the bad debts "rtten-off3) then hs s$bse#$entre'o!ery thereof shall be treated as a mere re'o!ery or a ret$rn of 'a&tal) hen'e) nottreated as re'e&t of real8ed ta%able n'ome. 2Se'. H) Re!. Re+s. @-3

C6 W$&! is me&n! 7y "e3re%i&!ion W$&! &re !$e "i##eren! me!$o"s o#

"e3re%i&!ion &llo(e" un"er !$e l&( 4S455ESTED ANSWER:a. De&re'aton s the +rad$al dmn$ton n the $sef$l !al$e of tan+ble &ro&erty

res$ltn+ from ordnary "ear and tear and from normal obsoles'en'e. The term s alsoa&&led to amort8aton of the !al$e of ntan+ble assets the $se of "h'h n the trade orb$sness s defntely lmted n d$raton.

b. The methods of de&re'aton are the follo"n+:,3 Stra+ht lne methodF/3 De'lnn+ balan'e methodF


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ta%able year and benefts s$'h ta%able year. Ne'essary e%&enses are those "h'h area&&ro&rate or hel&f$l to the b$sness.

b. The follo"n+ are the re#$stes for ded$'tblty of b$sness e%&enses:,3 (om&lan'e "th the b$sness test:

a3 6$st be ordnary and ne'essaryFb3 6$st be &ad or n'$rred "thn the ta%able yearF'3 6$st be &ad or n'$rred n 'arryn+ on a trade or b$sness.d3 6$st not be brbes) 1'1ba'1s or other lle+al e%&endt$res

/3 (om&lan'e "th the s$bstantaton test. Proof by e!den'e or re'ordsthe ded$'tons allo"ed by la" n'l$dn+ 'om&lan'e "th the b$sness test.

C In 2000? M&r&? In%? in%urre" P60?00000 in or"er !o 3romo!e !$e s&le o#i!s line o# l&"ies "resses ($i%$ (ere s3e%i&lly "esi8ne" &n" !&r8e!!e" !$e &len!ine5s"&y m&r>e! #or !$&! ye&r I! li>e(ise in%urre" P00?00000 !o 3romo!e i!s im&8e in!$e lo%&l m&r>e! &n" &no!$er P20?00000 !o 3romo!e !$e s&le o# i!s s$&res o# s!o%>

($i%$ i! (&s o##erin8 !o !$e 8ener&l 3u7li% #or s&leI! &s>s your &"'i%e on $o( !o !re&! !$ese &"'er!isin8 e3enses

S455ESTED ANSWER:a. It sho$ld ded$'t the P


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beyond hs 'ontrol s$'h as retren'hment. ,st&ar.) Se'. /.=?., 2B3 , b) Re!. Re+s.No. /-?

NOTES AND (O66ENTS: *** a. .on"i!ions #or e%lu"in8 re!iremen! 7ene#i!s #rom 8ross in%ome:

,3 Retrement benefts re'e!ed $nder Re&$bl' A't No. =>H, and thosere'e!ed by off'als and em&loyees of &r!ate frms) "hether nd!d$al or'or&orate) n a''ordan'e "th the em&loyer*s reasonable &r!ate beneft &lana&&ro!ed by the BIR.

/3 Retrn+ off'al or em&loyeea3 In the ser!'e of the same em&loyer for at least ten 2,3 yearsFb3 Not less than ffty 2@3 years of a+e at tme of retrementF'3 A!aled of the beneft of e%'l$son only on'e. Se'.

a) NIR( of ,=. The retrn+ off'al or em&loyee sho$ld not ha!e&re!o$sly a!aled of the &r!le+e $nder the retrement &lan of the same oranother em&loyer. ,st&ar.) Se'. /.=? 2B3 ,) Re!. Re+s. No. /-?

***b. Se3&r&!ion Dre!iremen! 3&y e%lu"e" #rom 8ross in%ome? $en%e !&=eem3!.

,3 Any amo$nt re'e!ed by an off'al) em&loyee or by hs hers)/3 9rom the em&loyer


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!$e s&i" 3&r%el o# l&n" Un#or!un&!ely #or $er? !$e em7&n>men! (&s "es!roye""urin8 !$e -uly B? 2001 #l&s$ #loo"s %&usin8 erosion ($i%$ le" !o & "e!erior&!ion o#!$e m&r>e! '&lue !o only P1 million T$e .i!y Assessor &ssesse" !$e 3ro3er!y #or!& 3ur3oses &! P12 million ($ile !$e ,IR )on&l '&lu&!ion is P19 million

& Su33osin8 !$&! on Au8us! 61? 2001? !$e o(ner o# !$e &"@oinin8 3ro3er!y7uys !$e 3ro3er!y &! P16 million? ($&! (oul" 7e !$e !& %onse;uen%es !o ,ell&%onsi"erin8 !$&! s$e su##ere" & loss4 E3l&in

7 Woul" your &ns(er 7e !$e s&me i# !$e 8o'ernmen! e3ro3ri&!e" !$e3ro3er!y &! i!s 3resen! m&r>e! '&lue o# P1 million4 W$y4

S455ESTED ANSWERS:a. The &ar'el of land s a 'a&tal asset of Bella. Ths s so be'a$se t s not her

sto'1 n trade) or &ro&erty n'l$dble as &art of her n!entory at the end of the ta%ableyear) or &ro&erty &rmarly held by her for sale to '$stomers n the ordnary 'o$rse oftrade or b$sness) or &ro&erty $sed n trade or b$sness s$b0e't to de&re'aton) or real&ro&erty $sed by Bella n her trade or b$sness. 2Se'. E3

J2 +e#ine ne! loss %&rry=o'er &n" ne! o3er&!in8 loss %&rry=o'er +is!in8uis$!$e !(o %on%e3!s &n" "is%uss !& im3li%&!ions o# e&%$

S455ESTED ANSWER:a. Net loss 'arry-o!er means the ded$'ton from net 'a&tal +ans of a s$''eedn+

year the net 'a&tal loss s$ffered d$rn+ the &ror year. Net o&eratn+ loss 'arry-o!er s theded$'ton from +ross n'ome for the ne%t three 2


45/64

'. Any ta%&ayer) other than a 'or&oraton 2nd!d$als n'l$dn+ tr$sts and estates3)"ho s$stans n any ta%able year a net 'a&tal loss from 'a&tal transa'tons n!ol!n+'a&tal assets 2other than real &ro&erty or shares of sto'1 not lsted or traded n the sto'1e%han+e3) s allo"ed to treat d$rn+ the s$''eedn+ year s$'h net 'a&tal loss as a lossfrom the sale or e%'han+e of a 'a&tal asset 2other than real &ro&erty or shares of sto'1 notlsted and traded n the sto'1 e%'han+e3) held for more than t"el!e months. 2Se'. in8 !re&!e" !$e in'es!men! in i!s 1JC In%ome T& Re!urn &s & 7&" "e7! or &s

&n or"in&ry loss "e"u%!i7le #rom i!s 8ross in%ome T$e ,IR "is&llo(e" !$e"e"u%!ion 7e%&use !$e in'es!men! s$oul" no! 7e %l&ssi#ie" &s F(or!$less Rule on

!$e "is&llo(&n%eS455ESTED ANSWER: BIR "as 'orre't. The e#$ty n!estment s 'a&tal n

'hara'ter) the loss of "h'h 'o$ld be ded$'tble only from 'a&tal +ans) and not from anyother n'ome of the ta%&ayer.

9rst (B( (a&tal 2Asa3) ;td.) the n!estee 'or&oraton) s a s$bssdary'or&oraton of (hna Ban1n+ "hose shares n sad n!estee 'or&oraton are not ntendedfor &$r'hase or sale b$t an n!estment. 2(hna Ban1n+ (or&oraton !. (o$rt of A&&eals)et al.) 5.R. No. ,/@?) &rom. $ly ,) /3

NOTES AND (O66ENTS:*** a. W$en se%uri!ies 7e%ome (or!$less? !$e l&( "eems !$e loss !o 7e & loss #rom

!$e s&le or e%$&n8e o# %&3i!&l &sse!s. An e#$ty n!estment s a 'a&tal) not ordnary)asset of the n!estor) the sale or e%'han+e of "h'h res$lts n ether a 'a&tal +an or a'a&tal loss. The +an or the loss s ordnary "hen the &ro&erty sold or e%'han+ed s not a'a&tal asset.

The loss s$staned by the holder of the se'$rtes) "h'h are 'a&tal assets 2to hm3)s to be treated as a 'a&tal loss as f n'$rred from a sale or e%'han+e transa'ton. A'a&tal +an or a 'a&tal loss normally re#$res the 'on'$rren'e of t"o 'ondtons for t tores$lt:

,3 There s a sale or e%'han+eF and/3 The thn+ sold or e%'han+ed s a 'a&tal asset.When se'$rtes be'ome "orthless there s str'tly no sale or e%'han+e b$t

the la" deems the loss any"ay to be a loss from the sale or e%'han+e of 'a&tal assets.2(hna Ban1n+ (or&oraton !. (o$rt of A&&eals) et al.) 5.R. No. ,/@?) &rom. $ly ,)

/3b. Se%uri!ies? "e#ine" #or "e"u%!i7ili!y o# 7&" "e7!s Shares of sto'1 n a

'or&oraton and r+hts to s$bs'rbe for or to re'e!e s$'h shares. The term n'l$desbonds) debent$res) notes or 'ertf'ates) or other e!den'e of ndebtedness) ss$ed by any'or&oraton) n'l$dn+ those ss$ed by a +o!ernment or &olt'al s$bd!son thereof) "thnterest 'o$&ons or n re+stered form. 2Se'. /.b) Re!. Re+s. No. @-3 *** '. T& !re&!men! o# se%uri!ies 7e%omin8 (or!$less If se'$rtes) as defned$nder Se'. / 2b3 hereof) held as 'a&tal asset) are as'ertaned to be "orthless and 'har+ed

H@


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off "thn the ta%able year) the loss res$ltn+ therefrom shall be 'onsdered as a loss fromthe sale or e%'han+e of 'a&tal asset made on the last day of s$'h ta%able year. Theta%&ayer) ho"e!er) has to &ro!e thro$+h 'lear and 'on!n'n+ e!den'e that the se'$rtesare n fa't "orthless.

Ths r$le) ho"e!er) s not tr$e n the 'ase of ban1s or tr$st 'om&anes n'or&orated$nder the la"s of the Phl&&nes) a s$bstantal &art of "hose b$sness s the re'e&t ofde&osts. 2Se'. @) Re!. Re+s. No. @-3

GGGJ .or3or&!ion $&s &n &u!$ori)e" %&3i!&l s!o%> o# P million "i'i"e"in!o 0?000 s$&res (i!$ 3&r '&lue o# P10000 3er s$&re P2 million o# !$e &u!$ori)e"%&3i!&l s!o%> (ere su7s%ri7e"? 7y '&rious s!o%>$ol"ers in%lu"in8 Mr /lores ($osu7s%ri7e" #or s!o%>s (i!$ 3&r '&lue o# P1 million To #ully 3&y #or $issu7s%ri3!ion? Mr /lores !r&ns#erre" in 2000 !o .or3or&!ion & 3&r%el o# l&n"I! (&s su7se;uen!ly "is%o'ere" 7y !$e ,ure&u o# In!ern&l Re'enue !$&! !$e 3&r%el o#l&n" $&" & #&ir m&r>e! '&lue o# only P1 million

& Sin%e !$e '&lue o# !$e 3&r%el o# l&n" (&s only P1 million ($ile Mr /loresre%ei'e" s$&res o# s!o%> (or!$ P1 million "i" Mr /lores e&rn in%ome &moun!in8

!o P00?00000 ($i%$ s$oul" 7e su7@e%! !o in%ome !& 4 On !$e o!$er $&n"? s$oul"!$e %or3or&!ion 7e &llo(e" !o "e"u%! & loss &moun!in8 !o P00?00000 4

7 W$&! (oul" 7e !$e !& !re&!men!? i# in 2001? Mr /lores sol" !$e s$&res o#s!o%> in .or3or&!ion ($i%$ &re no! lis!e" or !r&"e" in !$e s!o%> e%$&n8e #orP12 million 4

% Su33osin8 !$&! in 2001 .or3or&!ion sol" !$e 3&r%el o# l&n" #or P1

million ($i%$ is i!s )on&l '&lu&!ion in 2001 is no! en8&8e" in !$e re&l es!&!e7usiness W$&! (oul" 7e !$e !& !re&!men! #or su%$ & s&le 4

S455ESTED ANSWER:a. 6r. 9lores dd not earn any n'ome s$b0e't to ta% nether dd C7 n'$r a loss

"h'h t 'o$ld ded$'t from ts / +ross n'ome.

The transa'ton s 1no"n as a ta%-free e%'han+e solely n 1nd) hen'e no +an orloss s re'o+n8ed. It s an e%'han+e solely n 1nd be'a$se &ro&erty 2land3 "as e%'han+edfor another &ro&erty 2shares of sto'13. It s a ta%- free e%'han+e be'a$se as a res$lt of thee%'han+e) 6r. 9lores by hmself "as able to obtan 'ontrol of the 'or&oraton.

b. If n /,) 6r. 9lores sold the shares of sto'1 for P,./ mllon) the bass for theshares of sto'1 "o$ld be the !al$e of the &ar'el of land. In ths 'ase) t "o$ld be'onsdered as f 6r. 9lores a'#$red the shares of sto'1 for P, mllon the !al$e of the&ro&erty he has e%'han+ed for the shares of sto'1. Sn'e there s no sho"n+ n the&roblem that 6r. 9lores s en+a+ed n the b$sness of b$yn+ and selln+ shares of sto'1)then the net +an sho$ld be 'om&$ted) by ded$'tn+ the a'#$ston &r'e 2P, mllon3 fromthe selln+ &r'e 2P,./ mllon3. Th$s) the net +an s P/).. On the frstP,). net +an the ta% sho$ld be @L and on the amo$nt e%'eedn+ the frstP,). net +an then the ta% sho$ld be ,L. It s to be noted that the holdn+ &erods not a&&led.

'. A 'or&oraton s no" s$b0e't to 'a&tal +ans ta%es and all &ro'eeds from salesof real &ro&erty o"ned by a 'or&oraton "h'h are not $sed n trade or b$sness s s$b0e'tto the >L &res$med 'a&tal +ans ta%.

NOTES AND (O66ENTS: Remember that the frst transa'ton s ta%-free b$t

the se'ond transa'ton s ta%able. The &roblem that may be +!en may n!ol!e a mer+eror'onsoldaton n "h'h 'ase the abo!e &rn'&les also fnd a&&l'aton. ;1e"se) f thereare more &artes n!ol!ed than 6r. 9lores) then 6r. 9lores to+ether "th others not morethan fo$r sho$ld obtan 'ontrol of the 'or&oraton. If the e%'han+e s not solely n 1nd2for e%am&le) money &l$s &ro&erty "as e%'han+ed or shares of sto'1 or !'e-!ersa3) then

there s no ta%-free e%'han+e be'a$se the +an s ta%ed b$t the loss s not allo"ed to beded$'tble.

JB In !&=#ree e%$&n8es solely in >in"? ($&! is me&n! 7y 7oo! 4 W$&!&7ou! 7&sis 4

S455ESTED ANSWER:

H>


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Boot s the &ro&erty e%'han+ed for sto'1s or se'$rtes. 9or e%am&le) 6r. ;eone%'han+es hs &ar'el of land for shares of sto'1 n 6'1ey) In'. The boot s the &ar'el ofland. Bass s the !al$e ass+ned to the land or the shares of sto'1.

TRANS/ER TAES

*** JC +on .es&r Sori&no? & S3&nis$ n&!ion&l? "ie" on Se3!em7er ? 2000 in $is'ill& &! Lu%erne? S(i!)erl&n" He ee%u!e" & (ill 7e#ore $is "e&!$ le&'in8 &ll o# $is

3ro3er!ies !o $is 8irl #rien" M&ri%el Mon!&no? & /ili3ino resi"in8 in ,ru8e? ,el8iumT$e 8irl #rien" "e%i"e" !o 7rin8 !$e rem&ins o# +on .es&r? ($o (&s & resi"en! o#

!$e P$ili33ines #rom 16 u3 !o 1C !o !$e P$ili33ines #or 7uri&l 7e%&use !$&! (&s$is (is$ &s mos! o# $is #rien"s &re s!ill li'in8 in !$e P$ili33ines S$e s3en! &7ou!PC0?00000 #or #uner&l e3enses On Se3!em7er 1C? 2000 M&ri%el me! you inHon8>on8 &n" en8&8e" your ser'i%es in or"er !o se!!le !$e es!&!e o# +on .es&r in&%%or"&n%e (i!$ !$e (ill ($i%$ (&s 3ro3erly 3ro7&!e" in S(i!)erl&n" S$e 3resen!s!o you &n in'en!ory o# !$e 3ro3er!ies le#! 7y +on .es&r (i!$ !$eir %orres3on"in8

'&lues &s o# Se3!em7er ? 2000? +on .es&r5s "&!e o# "e&!$ T$e 'ill& in S(i!)erl&n"

USQ1 million< &n &3&r!men! 7uil"in8 lo%&!e" in Ne( or>? USQ million< &$&%ien"& in +&'&o P2 million 7u! !$e 3resen! '&lu&!ion is no( P90 million 7e%&useo# ro&" %ons!ru%!ions ($i%$ en$&n%e" !$e '&lue o# !$e 3ro3er!y< USQ1 million !$e'&lue o# li#e insur&n%e 3ro%ee"s #rom &n insur&n%e !&>en ou! 7y +on .es&r on $iso(n li#e "esi8n&!in8 $is es!&!e &s 7ene#i%i&ry #rom !$e .&n!on S(iss Insur&n%e &!.&n!on? S(i!)erl&n"< P2 million 3ro%ee"s o# li#e insur&n%e !&>en 7y +on .es&r on$is o(n li#e #rom P$il&mli#e Insur&n%e in !$e P$ili33ines 3&y&7le !o M&ri%el &s

irre'o%&7le 7ene#i%i&ry< ou!s!&n"in8 7&n> 7&l&n%e (i!$ P$ili33ine ,&n> o#.ommer%e in !$e &moun! o# P million (i!$ N&ne!!e &s $is &n"or %o="e3osi!or

S$&res o# s!o%> o# & Hon8>on8 %om3&ny 7u! m&n&8e" #rom !$e P$ili33ines &n" &P1 million &3&r!men! lo%&!e" in M&nil&? P$ili33ines ($i%$ $e "on&!e" !o $is %lose

#rien" on A3ril 2? 1J su7@e%! !o !$e %on"i!ion !$&! !$e #rien" remi!s !o +on.ess&r &ll !$e ren!&ls o# !$e 3ro3er!y "urin8 !$e li#e!ime o# +on .es&r

& W$&! s$oul" 7e re3or!e" &s 3&r! o# +on .es&r5s 8ross es!&!e &n" ($&!"e"u%!ions &re &llo(&7le !o "e!ermine $is ne! es!&!e4 E3l&in

7 Are !$e 3ro%ee"s o# !$e P2 million li#e insur&n%e !o 7e %onsi"ere" &s 3&r!o# !$e 8ross es!&!e o# +on .es&r or M&ri%el5s in%ome4 W$y4

% Su33osin8 M&ri%el (&n!s !o (i!$"r&( !$e P million #rom !$e 7&n>? ($&!&"'ise s$oul" you 8i'e $er4

" Is M&ri%el 7ein8 !$e sole 7ene#i%i&ry li&7le #or !$e 3&ymen! o# !$e es!&!e!&es4

S455ESTED ANSWER:

a. Sn'e Don (esar "as a non-resdent de'edent "ho at the tme of hs death "asnot a 't8en of the Phl&&nes) only that &art of the entre +ross estate "h'h s st$ated nthe Phl&&nes) shall be n'l$ded n hs ta%able estate. 2Se'. ?@) NIR( of ,=3 The&roblem s 'lear that Don (esar resded n the Phl&&nes only from ,


48/64

not the estate of Don (esar) hs e%e'$tor or admnstrator and the des+naton of thebenef'ary s rre!o'able. 2Se'. ?@ 2E3) NIR( of ,=3 The P/@ mllon s not alson'ome to 6ar'el be'a$se lfe ns$ran'e &ro'eeds &ad to benef'ares $&on the death ofthe ns$red are e%'l$sons from +ross n'ome. 2Se'.


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(or!$ P2 million !o $er son? &n" on -&nu&ry 2? 1? s$e "on&!e" !$e re=m&inin8 one=$&l# o# !$e s&me 3&r%el o# l&n" !o !$e s&me son< &n"

# PC0?00000 !o !$e Holy Or"er o# /ri&rs? & reli8ious %on8re8&!ion!o 7e use" #or !$e %ons!ru%!ion o# & %$ur%$A!!y .$&ri T A7le "eri'es $er in%ome solely #rom !$e 3r&%!i%e o# $er

3ro#ession & S$oul" s$e 7e su7@e%! !o "onor5s !&es on !$e &7o'e "on&!ions 4 7 Iss$e en!i!le" !o &ny eem3!ions 4 % S$oul" !$e "on&!ion m&"e !o $er son 7e !re&!e"

&s & sin8le "on&!ion 7e%&use only !(o "&ys se3&r&!e !$e "on&!ions 4 " S$oul" s$e7e &llo(e" !o "e"u%! !$e "on&!ions #rom $er in%ome "eri'e" #rom !$e eer%ise o# $er

3ro#ession 4

S455ESTED ANSWER:a. Atty. Able s s$b0e't to the &ayment of donor*s ta%es on the follo"n+

donatons: ,3 P/@). donaton to the al$mn asso'aton of the 4n!ersty of thePhl&&nes be'a$se the al$mn asso'aton s not a s'hoolF /3 The P@). donatonto a frend 2not related to Atty. Able by 'onsan+$nty "thn the fo$rth de+ree3 "h'h s'onsdered as a donaton to a stran+er hen'e s$b0e't to a donor*s ta% of thrty &er'ent2 o# 7i""ers

T$e '&li"i!y o# !$e ,IRs &%!ions is no( r&ise"S455ESTED ANSWER: The a&&ro!al of the 'o$rt sttn+ n &robate) or as a

settlement trb$nal o!er the estate of the de'eased s not a mandatory re#$rement for the'olle'ton of the estate. The &robate 'o$rt s determnn+ ss$es "h'h are not a+anst the

&ro&erty of the de'edent) or a 'lam a+anst the estate as s$'h) b$t s a+anst the nterest or&ro&erty r+ht "h'h the her) le+atee) de!see) et'. has n the &ro&erty formerly held bythe de'edent.

The not'es of le!y "ere re+$larly ss$ed "thn the &res'r&t!e &erod.The ta% assessment ha!n+ be'ome fnal) e%e'$tory and enfor'eable) the same 'an

no lon+er be 'ontested by means of a ds+$sed &rotest. 26ar'os) II !. (o$rt of A&&eals)et al.) /=< S(RA H=3

H


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1 Mr /il I Pino? & .&n&"i&n %i!i)en &n" & resi"en! o# On!&rio? .&n&"&?sen"s & 8i#! o# USQ20?00000 !o $is #u!ure "&u8$!er=in=l&( ($o is !o 7e m&rrie" !o$is only son in !$e P$ili33ines T$e m&rri&8e &%!u&lly !oo> 3l&%e on !$e "&!e !$e 8i#!(&s re%ei'e"

& Is !$e "on&!ion 7y Mr Pino su7@e%! !o !& 4 E3l&in Woul" your &ns(er7e !$e s&me i# Mr Pino is & /ili3ino %i!i)en 7u! is & non=resi"en! 4

7 W$&! is !$e !& %onse;uen%e? i# &ny? !o !$e Mr Pino5s "&u8$!er=in=l&(4S455ESTED ANSWER:a. es) be'a$se a non-resdent alen s e%em&t only from the &ayment of donor*s

ta%es f hs +fts are made to or for the $se of the Natonal 5o!ernment or any entty'reated by any of ts a+en'es "h'h s not 'ond$'ted for &roft) or to any &olt'als$bd!son of the sad 5o!ernment.

e s s$b0e't to ta% be'a$se the +ft "as not made n fa!or of an ed$'atonalandor 'hartable) rel+o$s) '$lt$ral or so'al "elfare 'or&oraton) nstt$ton) fo$ndaton)tr$st or &hlanthro&' or+an8aton or resear'h nstt$ton or 'or&oraton "h'h does not$se more than


51/64

a. An nd!d$al "hose +ross n'ome does not e%'eed hs total &ersonal andaddtonal e%em&tons for de&endents)Provided, That a 't8en of the Phl&&nes and anyalen nd!d$al en+a+ed n b$sness or &ra't'e of &rofesson "thn the Phl&&nes shallfle an n'ome ta% ret$rn re+ardless of the amo$nt of +ross n'omeF

b. An nd!d$al "th res&e't to &$re 'om&ensaton n'ome for ser!'es n"hate!er form &ad) n'l$dn+) b$t not lmted to fees) salares) "a+es) 'ommssons) andsmlar tems) der!ed from so$r'es "thn the Phl&&nes) the n'ome ta% on "h'h hasbeen 'orre'tly "thheld)Provided, That an nd!d$al der!n+ 'om&ensaton 'on'$rrentlyfrom t"o or more em&loyers at any tme d$rn+ the ta%able year shall fle an n'ome ta%ret$rn: Provided, further, That an nd!d$al "hose &$re 'om&ensaton n'ome der!edfrom so$r'es "thn the Phl&&nes e%'eeds S%ty tho$sand &esos 2P>).3) shall alsofle an n'ome ta% ret$rnF

'. An nd!d$al "hose sole n'ome has been s$b0e't to fnal "thholdn+ ta%Fd. An nd!d$al "ho s e%em&t from n'ome ta% &$rs$ant to the &ro!sons of the

NIR( of ,=) and other la"s) +eneral or s&e'al. 2Se'. @, A /) NIR( of ,=3NOTES AND (O66ENTS: An nd!d$al "ho s not re#$red to fle an n'ome

ta% ret$rn may ne!ertheless be re#$red to fle an nformaton ret$rn. 2Se'. @, A


52/64

sad n'ome. The n'ome re'&ent s stll re#$red to fle an n'ome ta% ret$rn andor &aythe dfferen'e bet"een the ta% "thheld and the ta% d$e on the n'ome. ,st and /nd

senten'es) Se'. /@=2B3) Re!. Re+s. No. /-?The t"o 1nds of 'redtable "thholdn+ ta%es are ,3 ta%es "thheld on n'ome

&ayments 'o!ered by the e%&anded "thholdn+ ta%F and /3 ta%es "thheld on'om&ensaton n'ome.

Eem3!ions #rom !$e re;uiremen! o# (i!$$ol"in8 or "hen no "thholdn+ ta%esre#$red: Payments to the follo"n+:

,. Natonal 5o!ernment and ts nstr$mentaltes n'l$dn+ &ro!n'al) 'ty) orm$n'&al +o!ernmentsF

/. Persons en0oyn+ e%em&ton from &ayment of n'ome ta%es &$rs$ant to the&ro!sons of any la") +eneral or s&e'al) s$'h as b$t not lmted to the follo"n+:

taxation} review notes of prof domondon} made 2001} 67 pages

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