2016 Tax1 TSN Dean Quibod 2nd Exam

TAXATION
1
Second Exam Transcription
Based on the Lectures of Dean Quibod

August 2, 2016 emanate and originate in the House. So Congress will determine
By Isay Abad what we call as the Tax Policy, thus the NIRC was enacted. (Of
course, the legislation is brought to the President for signing, or
Title 1 – Organization and Function of the Bureau of the President will not act on it and after 30 days it will lapse into
Internal Revenue a law.)

We will take up tonight Title 1 of the National Internal Revenue ü So the NIRC, in so far as the Executive Department,
Code (NIRC), in so far as the Organization and Function of the the implementation and enforcement of the law is in the
Bureau of Internal Revenue (BIR). Department of Finance (DOF).
_History_
- It is brought to the BIR, the agency in charge in so
• 1904 - Our Internal Revenue (IR) tax laws dates back far as our internal revenue laws.
as early as 1904. It was patterned after the IR laws of - The other agency, in charge also of revenue
the United States, being then a colony of the US. From collection is the Bureau of Customs (BOC). But
1904 it went to series of amendments in 1913, 1916 here, what is legislated involves the Tariff and
and 1970. Customs Code. Currently you have the Customs
• 1939 - The NIRC from then up to now began only in Modernizations Act of 2016. It lapsed into law
1939. Prior to 1939, it was just called an Internal sometime in June for Pnoy did not sign.
Revenue Law. And in 1939, the NIRC was enacted.
This was under CA 466 (?). Nevertheless, in so far as taxation of imported articles, it will be
• 1972 - From 1939 it went to series of amendments until governed by the Tariff and Customs Code (TACC) and likewise,
on 1972, the declaration of Martial Law, where Marcos it will still be the DOF that is in charge.

re-enacted the NIRC and called it the NIRC of 1977. Of
The Tax Policy on the levy is on Congress, the Tax
course, it went through series of amendments. Marcos administration aspect is done by the Executive through the DOF.
that time had both legislative and executive powers. But for specific purposes, as in the enforcement of the TACC, it
• 1986 - Then came EDSA in 1986. An Executive Order is the BOC.
was enacted re-enacting the same and called it the
NIRC of 1986. Cory at that time also had Legislative In the case of BOC, you have there the Commissioner, wherein
below him are the District collectors. The Philippines is divided
and Executive powers under a Revolutionary
into several districts where there are district collectors assigned.
Government.

• 1997 - The current NIRC is now the NIRC of 1997 – RA In the case of the BIR( in so far as internal revenue laws in
8424. This was promulgated through the persuasions connection with the NIRC and other special laws), it is headed
of the World Bank to reform our IR laws. So you notice by the Commissioner, and below him are the Revenue
in your Section 1: Regional Directors. Like the BOC, the revenue collection
offices are also brought down to the regional levels, not
Section 1. Title of the Code. – This Code shall be known as necessarily following the regional political set-up. Then below
the National Internal Revenue Code of 1997. the Regional Directors is the Revenue District Officers (RDO) in
the cities.

The you have Section 3. The Officials of the BIR is headed by
Now, this law took effect on January 1, 1998. This has been the
the Commissioner with 4 deputy commissioners.
law until now which was also subjected to amendments. What

we are using now is the NIRC of 1997 as amended. That is the
brief background of our Section 1 on how these all came about. Section 3. Chief Officials of the Bureau of Internal
You have Section 2, the Powers and Duties of the BIR, in so far Revenue - The Bureau of Internal Revenue shall have a chief
as the BIR set-up. to be known as Commissioner of Internal Revenue,
hereinafter referred to as the Commissioner and four (4)
assistant chiefs to be known as Deputy Commissioners.
Section 2. Powers and Duties of the Bureau of Internal
Revenue – The Bureau of Internal Revenue shall be under
the supervision and control of the Department of Finance and Now the BIR has 2 essential functions:
its powers and duties shall comprehend the assessment and 1. Quasi-legislative – power to make rules and
collection of all national internal revenue taxes, fees, and regulations in the enforcement of the NIRC or the tax
charges, and the enforcement of all forfeitures, penalties, and law, for purposes of assessment and collection under
fines connected therewith, including the execution of Section 2.
judgments in all cases decided in its favor by the Court of Tax 2. Quasi-judicial – the power under Section 4, the power
Appeals and the ordinary courts. The Bureau shall give effect to interpret. Interpretation is usually judicial in character
to and administer the supervisory and police powers
such as in deciding cases.
conferred to it by this Code or other laws.

In the exercise of the power of taxation which was brought up The Commissioner both has this legislative and powers.
under our discussion in the Principles, the power of Taxation is
inherent in the State. It is exercised by the Legislative body, in SEC. 4. - Power of the Commissioner to Interpret Tax
our case, the Congress. Specifically, the tax measures should Laws and to Decide Tax Cases.
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After that is done, does that mean na tapos na iyon? Natanggap
The power to interpret the provisions of this Code and other nan g BIR yung return and bayad mo, hanggang doon na lang
tax laws shall be under the exclusive and original jurisdiction ba? The answer is No. After filing the return and paying, tska
of the Commissioner, subject to review by the Secretary of palang papasok iyong tax assessment process.
Finance.
You will now be subject to tax examination, merong taga BIR na
Xxx pupunta sa tindahan mo dala ang letter of authority that you are
under investigation. You are under investigation not for the
reason na nandaya ka, but for purposes that they want to
So take note of the scope of authority. It is exclusive and examine on whether you declared the correct income and filed
original. No other office in the government has the power to the correct tax. Malalaman lang na nandaya ka after the result
interpret, except the Commissioner, subject to review by the of the examination, meanwhile, wala pa iyon. There is no
Secretary of Finance. suspicion. That is a routinary process done kasi nga self-
assessing. How will the BIR know na tama iyong dineclare at
SEC. 4. - Power of the Commissioner to Interpret Tax binayaran mo. So, since hindi alam ng gobyerno na tama iyon,
Laws and to Decide Tax Cases. it goes to that assessment process. The government is given 3
Xxxx years after the filing of the return, from the deadline, the
government is given 3 years to determine kung tama ba iyong
The power to decide disputed assessments, refunds of dineclare mo at tama ba iyong tax.
internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this However, not all dadaan sa assessment, may mga suki lang jan.
Code or other laws or portions thereof administered by the Of course, if you are a wage earner you will not be subject to
Bureau of Internal Revenue is vested in the Commissioner, that. The government will be spending so much for the
subject to the exclusive appellate jurisdiction of the Court of examination and then 1thousand lang pala ang babayaran mo
Tax Appeals. na tax. In other words, there is bench marking and selection
process, titingnan nila sino itong big tax payers. If you are a big
So, second paragraph of Section 4. All matters involving business or a large tax payer then they will have a basis for the
assessments. examination.
How come they are to decide disputed assessments?
- Because the taxes in the NIRC are what we call Your returns now will be investigated kung tama ba iyon. After
Self-assessing taxes. that they will send you now a notice of assessment, on the basis
na meron silang nakita na deficiency, pag-recompute may
- They are called self-assessing because the tax
kulang, a notice will now be sent. So kung gusto mong
payer himself determines the tax liability. ichallenge yung assessment deficiency, then the remedy of the
tax payer is to protest. The protest is lodged to the CIR (BIR) on
How? the basis of its Quasi-judicial powers. It will either be granted or
- He files the tax return and pays the tax. denied.

Is there any intervention outside of the tax payer? Also, under section 4 the tax payer may file for a tax refund. If
- None. The tax payer is the one who files the return, the tax payer discovers that he has overpaid or erroneously paid
makes the declaration of the return, on the basis the tax then magfifile siya ng claim for refund. The BIR will either
of such, computes the tax and pays the amount he grant or deny, if denied, it will go to the CTA.
computed.
Now Section 5, the power of the Commissioner to Obtain

information, and to Summon/Examine, and to take Testimony.
Unlike real property tax, there is an intervention, this is what we

call as the Non- self-assessing.
Section 5. Power of the Commissioner to Obtain
- Example of a non- self-assessing is the Customs
information, and to Summon/Examine, and Take
Duties. The importer is unable to determine the Testimony of Persons. - In ascertaining the correctness of
dutiable value. The imported article upon arrival, any return, or in making a return when none has been made,
will pass through the Customs Examiner and or in determining the liability of any person for any internal
Customs Appraiser and will go to the Customs revenue tax, or in collecting any such liability, or in evaluating
Collector. tax compliance, the Commissioner is authorized:

In the NIRC, there is no such process. Just like in your income, (A) To examine any book, paper, record, or other data
the determination of your income is not dictated by the which may be relevant or material to such inquiry;;
government, ikaw mismo as a tax payer would know the income
or wages that you will be earning. On the basis of that, ikaw ang (B) To obtain on a regular basis from any person other
magfifile ng iyong returns kasi ikaw yung nakakaalam. Whether than the person whose internal revenue tax liability
dayaan mo iyan o hindi, that is up to you. On the basis of that is subject to audit or investigation, or from any office
return, you will be paying the tax. This is a general feature ha, or officer of the national and local governments,
this is not the nitty-gritty yet because the statute will provide the government agencies and instrumentalities,
peculiarities. including the Bangko Sentral ng Pilipinas and
government-owned or -controlled corporations, any
information such as, but not limited to, costs and
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volume of production, receipts or sales and gross Outside of the 2 grounds, there is no way.
incomes of taxpayers, and the names, addresses,
and financial statements of corporations, mutual Then Section 6. Another Power of the Commissioner to Make
fund companies, insurance companies, regional assessments and Prescribe Additional Requirements for Tax
operating headquarters of multinational companies, Administration and Enforcement. That is really a power in so far
joint accounts, associations, joint ventures of as the tax administration aspect.
consortia and registered partnerships, and their
members;; Under section 6(a). Examination of Returns and Determination
of Tax Due. After the return has been filed, che-check apin kung
(C) To summon the person liable for tax or required to tama ba yun by the Commissioner through the district revenue
file a return, or any officer or employee of such officers.
person, or any person having possession, custody,
or care of the books of accounts and other Section 6. Power of the Commissioner to Make
accounting records containing entries relating to the assessments and Prescribe additional Requirements for
business of the person liable for tax, or any other Tax Administration and Enforcement
person, to appear before the Commissioner or his
duly authorized representative at a time and place (A)Examination of Returns and Determination of Tax
specified in the summons and to produce such Due.
books, papers, records, or other data, and to give - After a return has been filed as required under the
testimony;; provisions of this Code, the Commissioner or his duly
authorized representative may authorize the examination of
(D) To take such testimony of the person concerned, any taxpayer and the assessment of the correct amount of
under oath, as may be relevant or material to such tax: Provided, however;; That failure to file a return shall not
inquiry;; and prevent the Commissioner from authorizing the examination
of any taxpayer.
(E) To cause revenue officers and employees to make
a canvass from time to time of any revenue district The tax or any deficiency so assessed shall be paid upon
or region and inquire after and concerning all notice and demand from the Commissioner of from his duly
persons therein who may be liable to pay any authorized representative.
internal revenue tax, and all persons owning or
having the care, management or possession of any Any return, statement of declaration filed in any office
object with respect to which a tax is imposed. authorized to receive the same shall not be withdrawn:
Provided, That within three (3) years from the date of such
The provisions of the foregoing paragraphs notwithstanding, filing, the same may be modified, changed, or amended:
nothing in this Section shall be construed as granting the Provided, further, That no notice for audit or investigation of
Commissioner the authority to inquire into bank deposits such return, statement or declaration has in the meantime
other than as provided for in Section 6(F) of this Code been actually served upon the taxpayer.

Ito yung mangyayari during the 3year period. The BIR will ask Section 6(b). For failure to submit required returns, statements,
you to submit your receipts, books and records. They will obtain reports and other documents, then the Commissioner will make
rd
3 party information, your suppliers and customers. Baka meron the assessments on the basis of the best evidence obtainable.
palang undeclared income. Like you did not file a return, what is the basis now for the BIR if
wala kang record sa kanila, they will now investigate you and
Then on the last paragraph, on the authority to inquire on your ask for your records. On the basis of the best evidence
bank accounts. In spite of all these vast powers and authority of obtainable, they will now make an assessment na ito ang hindi
the Commissioner, hindi nito saklaw ang paginquire sa iyong mo binayaran, they will make an assessment of your tax
bank deposits. There is actually a proposal in Congress to relax deficiency.
the Bank Secrecy Law because its provisions are very strict.
There are only 2 grounds within which the BIR can inquire into (B) Failure to Submit Required Returns, Statements,
your bank accounts: Reports and other Documents. When a report required by
law as a basis for the assessment of any national internal
1. For Estate Tax purposes revenue tax shall not be forthcoming within the time fixed by
laws or rules and regulations or when there is reason to
2. When the tax payer files for compromise on tax believe that any such report is false, incomplete or erroneous,
deficiency based on financial incapacity the Commissioner shall assess the proper tax on the best
evidence obtainable.
- After a finding of a deficiency, the tax payer would

now ask for a compromise. May finding na 10M In case a person fails to file a required return or other
ang deficiency and the tax payer will say na I am document at the time prescribed by law, or willfully or
willing to pay pero wala akong pera, may pera ako otherwise files a false or fraudulent return or other document,
sa bangko pero 500T nalang. So totoo ba yan, the Commissioner shall make or amend the return from his
papirmahin ka ng waiver to inquire now into your own knowledge and from such information as he can obtain
through testimony or otherwise, which shall be prima facie
bank accounts.
correct and sufficient for all legal purposes.

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Then Section 6(c), for the authority to conduct inventory-taking, partly ineffective unless such proceedings are begun
surveillance and to prescribe Presumptive Gross Sales and immediately, the Commissioner shall declare the tax period
Receipts. They would go to your bodega and conduct of such taxpayer terminated at any time and shall send the
inventories. Or do surveillance like na tip-off yung BIR na heavy taxpayer a notice of such decision, together with a request for
yung business but noticed that the volume of the business that the immediate payment of the tax for the period so declared
come and go does not match to the returns of the tax that you terminated and the tax for the preceding year or quarter, or
are paying. Magoobserve ngayon sila sa business mo, across such portion thereof as may be unpaid, and said taxes shall
the street, magcocoffeeshop, titingnan tingnan ang labas pasok be due and payable immediately and shall be subject to all
ng business mo. On that day alone, they will be able to record the penalties hereafter prescribed, unless paid within the time
of the volume. If it will not match their surveillance, they will now fixed in the demand made by the Commissioner.
make a presumptive gross sales and receipts, kasi you
underdeclared your gross rates. Section 6(e). The authority to prescribe real property values. For
purposes of real property tax, it is your local assessor (city or
(C) Authority to Conduct Inventory-taking, surveillance provincial) which determines the fair market value in a particular
and to Prescribe Presumptive Gross Sales and Receipts. territory or locality. The BIR also makes its own valuation which
- The Commissioner may, at any time during the taxable year, we call as the zonal value. Usually the zonal value of the BIR is
order inventory-taking of goods of any taxpayer as a basis for higher than the fair market value of the assessor. They are not
determining his internal revenue tax liabilities, or may place necessarily bound to follow the valuation of the assessor. So, in
the business operations of any person, natural or juridical, determining fair market value therefore, there are 2 valuations.
under observation or surveillance if there is reason to believe For purposes of the tax base, the rule is whichever is higher
that such person is not declaring his correct income, sales or between the BIR and the assessor.
receipts for internal revenue tax purposes. The findings may
be used as the basis for assessing the taxes for the other (E) Authority of the Commissioner to Prescribe Real
months or quarters of the same or different taxable years and Property Values. - The Commissioner is hereby authorized
such assessment shall be deemed prima facie correct. to divide the Philippines into different zones or areas and
shall, upon consultation with competent appraisers both from
When it is found that a person has failed to issue receipts and the private and public sectors, determine the fair market value
invoices in violation of the requirements of Sections 113 and of real properties located in each zone or area. For purposes
237 of this Code, or when there is reason to believe that the of computing any internal revenue tax, the value of the
books of accounts or other records do not correctly reflect the property shall be, whichever is the higher of:
declarations made or to be made in a return required to be
filed under the provisions of this Code, the Commissioner, (1) the fair market value as determined by the Commissioner,
after taking into account the sales, receipts, income or other or
taxable base of other persons engaged in similar businesses
under similar situations or circumstances or after considering (2) the fair market value as shown in the schedule of values
other relevant information may prescribe a minimum amount of the Provincial and City Assessors.
of such gross receipts, sales and taxable base, and such
amount so prescribed shall be prima facie correct for Section 6(f). This is the authority to inquire into the bank
purposes of determining the internal revenue tax liabilities of accounts, whether you have the peso or foreign currency.
such person. Looking into the 2 instances, for the estate and on the basis to
compromise the tax liability based on financial capacity.
Section 6(d), is the authority to terminate taxable period which
will take place when the tax payer will retire. Hindi ibig sabihin Now there is a third one which is introduced under RA 10021,
na wala ka ng obligasyon when you retire. Babalikan ka pa rin this is an inquiry by a foreign tax authority. A foreign tax authority
ng BIR, paano iyong transactions before that. When you retire, may inquire on the BIR for a tax information, and that is allowed
the BIR will make an assessment, a tax period otherwise under this section 6f number 3. Ang haba2x ng provision.
babalikan ka. They will investigate you again to determine you (Please refer to your codal for the provision.)
still have to pay deficiency tax. We also have those intending to
leave the country or removing property or hide or concealing Section 6(g). Authority to accredit and register tax agents. Hindi
property tending to obstruct the collection of the tax. ito mga fixers. They used to be fixers. Ngayon, kasi di mapigilan
ang mga taong nagfofollow-up, they are now able to regulate the
We will just finish this part. When the assessment has already fixers by accrediting them. They are accredited based on their
become final, the next thing that will happen is collection. Paano professional competence, integrity and moral fitness. This is
ba nila kokolektahin ang deficiency tax. They would run after you required if you are not a lawyer. If you are a lawyer, you can go
real and personal properties, garnish your properties to collect to all offices without need of any accreditation. But for purposes
the deficiency. The assessment is 3 years, the BIR is given 5 of the BIR, kailangan accredited ka. If you are a lawyer, there is
years to complete the collection. no need for such accreditation.

(D) Authority to Terminate Taxable Period. - When it shall (G) Authority to Accredit and Register Tax Agents. - The
come to the knowledge of the Commissioner that a taxpayer Commissioner shall accredit and register, based on their
is retiring from business subject to tax, or is intending to leave professional competence, integrity and moral fitness,
the Philippines or to remove his property therefrom or to hide individuals and general professional partnerships and their
or conceal his property, or is performing any act tending to representatives who prepare and file tax returns, statements,
obstruct the proceedings for the collection of the tax for the reports, protests, and other papers with or who appear
past or current quarter or year or to render the same totally or
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before, the Bureau for taxpayers. Within one hundred twenty (a) The Commissioner of Customs and his subordinates with
(120) days from January 1, 1998, the Commissioner shall respect to the collection of national internal revenue taxes on
create national and regional accreditation boards, the imported goods;;
members of which shall serve for three (3) years, and shall (b) The head of the appropriate government office and his
designate from among the senior officials of the Bureau, one subordinates with respect to the collection of energy tax;; and
(1) chairman and two (2) members for each board, subject to (c) Banks duly accredited by the Commissioner with respect
such rules and regulations as the Secretary of Finance shall to receipt of payments internal revenue taxes authorized to
promulgate upon the recommendation of the Commissioner. be made thru bank.
Any officer or employee of an authorized agent bank
Xxx assigned to receive internal revenue tax payments and
transmit tax returns or documents to the Bureau of Internal
Section 6(h). This is for purposes of compliance. If they see Revenue shall be subject to the same sanctions and
some loopholes in your requirements then they will require some penalties prescribed in Sections 269 and 270 of this Code.
more documents.
For Section 12(a) We have here the BOC, in connection with
(H) Authority of the Commissioner to Prescribe importation. When you import you don’t only pay the duties, you
Additional Procedural or Documentary Requirements. - also pay an internal revenue tax (like VAT) on account of
The Commissioner may prescribe the manner of compliance importation on excise tax. Since the excise tax is due to the BIR,
with any documentary or procedural requirement in it is the BOC who is in charge of collecting kasi doon dadaan sa
connection with the submission or preparation of financial kanila. We don’t place BIR personnel there but under the law
statements accompanying the tax returns. they are now deputized.

Now, Section 7. Authority of the Commissioner to delegate For Section 6(c). Payment of taxes may now be made online to
power. The powers of the commissioner will be delegated down duly accredited banks.
to the regional directors down to the revenue offices. However,
there are powers that cannot be delegated. SEC. 13. Authority of a Revenue Offices. - subject to the
rules and regulations to be prescribed by the Secretary of
SEC. 7. Authority of the Commissioner to Delegate Finance, upon recommendation of the Commissioner, a
Power. - The Commissioner may delegate the powers vested Revenue Officer assigned to perform assessment functions
in him under the pertinent provisions of this Code to any or in any district may, pursuant to a Letter of Authority issued by
such subordinate officials with the rank equivalent to a the Revenue Regional Director, examine taxpayers within the
division chief or higher, subject to such limitations and jurisdiction of the district in order to collect the correct amount
restrictions as may be imposed under rules and regulations of tax, or to recommend the assessment of any deficiency tax
to be promulgated by the Secretary of finance, upon due in the same manner that the said acts could have been
recommendation of the Commissioner: Provided, however, performed by the Revenue Regional Director himself.
That the following powers of the Commissioner shall not be
delegated: Section 13. The Revenue officer could not make his
assessment functions without that Letter of Authority (LOA). No
(a) The power to recommend the promulgation of rules revenue officer can go to the tax payer and say “iimbestigahan
and regulations by the Secretary of Finance;; ka na namin” that we are asking for your books of account etc.,
(b) The power to issue rulings of first impression or to that could not be done if he is not armed with the letter of
reverse, revoke or modify any existing ruling of the authority. That LOA should also define kung anong year ka
Bureau;; iimbestigahan, kasi paano kung nagprescribe na pala.
(c) The power to compromise or abate, xxx
(d) The power to assign or reassign internal revenue SEC. 15. Authority of Internal Revenue Officers to Make
officers to establishments where articles subject to Arrests and Seizures. - The Commissioner, the Deputy
excise tax are produced or kept. Commissioners, the Revenue Regional Directors, the
Revenue District Officers and other internal revenue officers
SEC. 8. Duty of the Commissioner to Ensure the Provision shall have authority to make arrests and seizures for the
and Distribution of forms, Receipts, Certificates, and violation of any penal law, rule or regulation administered by
Appliances, and the Acknowledgment of Payment of Taxes. the Bureau of Internal Revenue. Any person so arrested shall
be forthwith brought before a court, there to be dealt with
SEC. 9. Internal Revenue Districts. according to law.

SEC. 10. Revenue Regional Director. SEC. 16. Assignment of Internal Revenue Officers
Involved in Excise Tax Functions to Establishments
SEC. 11. Duties of Revenue District Officers and Other Where Articles subject to Excise Tax are Produced or
Internal Revenue Officers. Kept. - The Commissioner shall employ, assign, or reassign
internal revenue officers involved in excise tax functions, as
SEC. 12. Agents and Deputies for Collection of National often as the exigencies of the revenue service may require,
Internal Revenue Taxes. - The following are hereby to establishments or places where articles subject to excise
constituted agents of the Commissioner: tax are produced or kept: Provided, That an internal revenue
officer assigned to any such establishment shall in no case
stay in his assignment for more than two (2) years, subject to
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rules and regulations to be prescribed by the Secretary of through the Chairmen of the Committee on Ways and Means
Finance, upon recommendation of the Commissioner. of the Senate and House of Representatives, a report on the
exercise of his powers pursuant to the said section, every six
Section 16. Here, revenue officers may be assigned to certain (6) months of each calendar year.
establishments for 2 years lang. After that pwede ng palitan
because familiarity brings ------. Kung magtagal yan, di na yan Section 19. and Section 20. These reports are submitted to
magbantay, magbeso2x na yan and magchikachika. Congress by the commissioner, specially if the statutes have
loopholes on the basis of her reports. Any tax leakages or
SEC. 17. Assignment of Internal Revenue Officers and loopholes will be brought to the oversight committee for its
Other Employees to Other Duties. - The Commissioner corresponding legislation.
may, subject to the provisions of Section 16 and the laws on
civil service, as well as the rules and regulations to be Section 21. Sources of Revenue. These taxes are self-
prescribed by the Secretary of Finance upon the assessing.
recommendation of the Commissioner, assign or reassign
internal revenue officers and employees of the Bureau of SEC. 21. Sources of Revenue. - The following taxes, fees
Internal Revenue, without change in their official rank and and charges are deemed to be national internal revenue
salary, to other or special duties connected with the taxes:
enforcement or administration of the revenue laws as the (a) Income tax;;
exigencies of the service may require: Provided, That internal (b) Estate and donor's taxes;;
revenue officers assigned to perform assessment or (c) Value-added tax;;
collection function shall not remain in the same assignment (d) Other percentage taxes;;
for more than three (3) years;; Provided, further, That (e) Excise taxes;;
assignment of internal revenue officers and employees of the (f) Documentary stamp taxes;; and
Bureau to special duties shall not exceed one (1) year. (g) Such other taxes as are or hereafter may be imposed and
collected by the Bureau of Internal Revenue.
Section 17. Assignment of Internal Revenue Officers and Other
Employees to Other Duties. They could be assigned to other Next meeting we will go now to Income Tax. J
duties but it shall not be more than 3 years. This became a law
because prior to this law during the time of Commissioner
Liwayway Santiago, she made reassignments. Of course, yung
mga racket nila matatamaan, so they complained. Kung mag-
assign ka 3 years lang. August 9, 2016
By Yasmine Ibay
SEC. 19. Contents of Commissioner's Annual Report. -
The Annual Report of the Commissioner shall contain INTRODUCTION TO INCOME TAXATION
detailed statements of the collections of the Bureau with
specifications of the sources of revenue by type of tax, by What is Income?
manner of payment, by revenue region and by industry group
and its disbursements by classes of expenditures. Income is the amount of money or property received by a
In case the actual collection exceeds or falls short of target taxpayer (person or corporation) within a specified time whether
as set in the annual national budget by fifteen percent (15%) as payment for services, interest, or profits from investments.
or more, the Commissioner shall explain the reason for such
excess or shortfall. Supreme Court’s Definition of Income - Income is the flow of
wealth into the hands of the taxpayer other than return of capital.
SEC. 20. Submission of Report and Pertinent Information *Note: This is a broader concept of income.
by the Commissioner

(A) Submission of Pertinent Information to Congress. - The CONCEPT OF INCOME
provision of Section 270 of this Code to the contrary
notwithstanding, the Commissioner shall, upon request of Capital is the fund whereas, income is the wealth. However, not
Congress and in aid of legislation, furnish its appropriate all wealth which goes into the hands of the taxpayer will become
Committee pertinent information including but not limited to: income. Part of that will be considered as capital.
industry audits, collection performance data, status reports in
criminal actions initiated against persons and taxpayer's As an illustration, we look into a borrower-lending relationship.
returns: Provided, however, That any return or return The lender lends money to the borrower for P10,000 with 12%
information which can be associated with, or otherwise interest.
identify, directly or indirectly, a particular taxpayer shall be
furnished the appropriate Committee of Congress only when Principal: 10,000
sitting in Executive Session Unless such taxpayer otherwise Interest: (10,000 *12%) 1,200
consents in writing to such disclosure. Total Payment due: 11,200 (10,000 is a return
of capital and 1,200 is the income)
(B) Report to Oversight Committee. - The Commissioner
shall, with reference to Section 204 of this Code, submit to
the Oversight Committee referred to in Section 290 hereof,
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Take note that a part of the 11,200 is capital and capital is not income. Hence, a transaction where no exchange of
considered as income. So 10,000 is the capital and the 1,200 is value is given or received does not give rise to an
the income. income. For income to be recognized, there must be a
transaction where there is a change of value. How will
Wealth which goes into the hands of the taxpayer will be income that be? There must be a sale, conveyance or transfer
provided that it does not pertain to capital. If the wealth that goes of the property. If there is no change or transaction,
into the hands of the taxpayer includes income, then you have there will just be an appreciation. What you are looking
to remove capital portion in order to determine the income. at is just a capital which just appreciated in value. But
in the event that you are going to sell that property and
you are going to derive a gain upon that sale, then there
INCOME DERIVED FROM LABOR, EXERCISE OF BUSINESS will be an income. So a transaction where there is no
OR PROFESSION exchange of values, it does not give rise to an income.

From services rendered. Income is also pertains to earnings 2. The gain or profit must be realized or received.
derived from services rendered. Wages are paid services for
rendered. Likewise, salaries are paid for the labor rendered, Basis on recognizing income:
there is income. a. Actual receipt (Cash Basis)
b. Constructive Receipt (Accrual Basis)
Who earned the income? The laborer or the worker.
In the context of realization of income, income is
From the exercise of business or profession. It is through the recognized on the basis of actual receipt or
use of capital as a form of business or investment. Income is constructive receipt. Under the Tax Code in relation
derived from profit in the exercise of a business. Also, income is for accounting purposes, the taxpayer is given an
derived when investments are made. When a gain or profit is option at what point in time income is to be
made through those investments then you will have also income. recognized. It may be recognized on the basis of
actual receipt or constructive receipt. In other words,
So income may be derived from labor, exercise of business or income will be recognized upon the actual receipt of the
investment, or both. money. Or income is recognized when it was realized
even though actual receipt is only later.

GAINS IN DEALINGS OF PROPERTY In accounting, the actual receipt is called the CASH
BASIS. On the other hand, constructive receipt refers
Income is also derived from the gains or profits in dealings in to the ACCRUAL BASIS. Here, income is already
property whether real or personal. The gain or profit in excess of recognized although actual receipt is later.
capital as a result of the exchange of transactions will be called
as income. However, we are not only interested in the income. Example:
What we are interested of is the taxability of the income. For
purposes of taxability, there are 3 essential requisites for the Declaration of Dividends by X Corporation
taxability of the income. • November 15, 2015 – declaration of dividends
• January 15, 2016 – distribution of dividends

You are a stockholder of the corporation and you
ESSENTIAL REQUISITES FOR THE TAXABILITY OF received dividends. Let’s say, on the basis of your
INCOME shareholdings, there is a dividend of P1,000 and you
received the dividends on January 15, 2016. If you are
1. There must be a gain or profit. a stockholder, when did you realize/recognize the
income? The taxpayer under the NIRC is given 2
Mere expectation for profit is not income. An increase options at what point in time he is going to recognize
or appreciation in the value of the property does the income. If a stockholder uses the actual receipt for
not give rise to income. recognizing the income, income is recognized only on
January 15, 2016 (taxable in the year 2016). This is the
For instance, you are a holder of shares of stocks time he realized the income on the basis of actual
which you acquired 5 years ago and it was just selling receipt.
at P1.00. So you acquired 1,000 shares at P1.00 at a
total of P1,000. 5 years after, the value of the shares But if the stockholder is a constructive receipt taxpayer,
ballooned to P1,000.00/share. So from P1.00, the that he recognized the income at the time it was earned
value of the share increased to P1,000. even though receipt will take place later, then income
is recognized as early as 2015 (November 15, 2015)
Is there income? when the dividends were declared. So at the point
where dividends were declared, income was already
No. There is merely an appreciation or increase in the there even though he is going to receive that later on.
value of the property. There is no income. The income was constructively received as early as
November 15, 2015.
For purposes that there will be an income, there
must be a transaction that will give rise to the
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So that is the option given to the taxpayer. He may use distinction of the different types of income which the taxpayer
constructive or actual receipt in recognizing the may earn.
income.
Our current income tax system follows the schedular. We
*Note: The law and for accounting purposes categorize our income into 4 classes.
requires consistency in recognizing/ realizing the
amount of income that you are going to earn during Four classes of categories of income:
the tax year. Hence, if the taxpayer uses the actual 1. Compensation income
receipt, then all income that he is going to receive 2. Business income / professional income
during the tax year shall be based on the actual receipt. 3. Passive income
The same is true if he opts to use the constructive 4. Capital gains
receipt.
In your readings you may encounter semi-schedular, semi-
global etc. but predominantly it is schedular. You would go over
3. The gain or profit must not be excluded by law or the tax treatment over the different classes of taxpayers from
treaty from taxation. (It is not tax-exempt.) individuals to corporations. You’ll notice the differentiation in the
manner of the treatment of these income. But they would say
that it is semi-global because there would be a common
treatment to all other income which are not subject to
TWO APPROCHES IN TAXATION special/preferential rates.

In taxation of income, there are 2 role approaches.
1. Global Approach WITHHOLDING TAXES
2. Schedular Approach
When we shifted from the global to schedular, when there was
Brief History of our Tax System. The Philippine Income Tax a distinction and differentiation of income, we introduced a tax
System evolved from global to schedular. Before the late 80’s, reform. We introduced the withholding of taxes.
we have the global system of taxation. The global system follows
the principle that all income are one and the same. Under this Under the global approach, since it follows the principle that all
income recognition, the law did not recognize the different kinds income are one and the same, a lot of income items have
and classes of income. In other words, since all income is escaped taxation. If you are a taxpayer who is purely
treated as one and the same, all types of income that you will compensation income earner, normally the income that will be
receive during the tax year (whether compensation, business, taxed are those income arising from your labor. Now, if you have
profits, gains, and from other transactions) will be all treated as a bank deposit having an amount of P10,000 and at the end of
one and the same. They are declared one time, claim the the year it earned an interest of P100, normally you will not
deductions, and the taxable income will remain subject to the anymore declare an interest income of P100 since it is merely of
income tax rates. So there was no differentiation of the different minimal value. However, what if there are 100 million people
types of income because all income are one and the same. doing the same thing? Then that would be a big chunk of
revenue that would escape taxation. Nakaligtaan itax because
Case Ruling of the global approach of taxing income. There will be a lot of
Tan vs. Del Rosario (237 SCRA 324) income items which will not be reported. So we addressed that
by shifting to schedular approach. Then we introduced the
Global Approach refers ta a system where the tax withholding of taxes.
treatment views indifferently the tax base and generally
treats in common all categories of taxable income of The withholding of taxes follows the principle of pay-as-
the taxpayer. you-go. Under the principle of pay-as-you-go, a tax is already
collected at the source of the income. In the case of wages, upon
On the other hand, Schedular Approach refers to a the receipt from the employer, the taxes due are already
system employed where the income tax treatment deducted and withheld by the employer. The employer then
varies and made to depend on the kind or category of remits the same to the BIR.
taxable income of the taxpayer.
Yung interest income niyo sa deposit, masking P100 lang yan,
kinaltasan na yan ng bangko for the withholding tax on interest
Take note that the tax treatment view indifferently the tax base. income which we also call as passive income.
There is no distinction. It generally treats in common the
categories of taxable income. All income are mingled, we allow Withholding Agents. Under this principle, the tax was already
deductions if applicable, then you have your taxable income charged against the taxpayer at the very source of the income.
times the income tax rate. So you have “withholding agents”. The employer, banks,
whoever has custody of the income before its remittance to the
The opposite is what we call as the Schedular. There is a recipient. That custodian or withholding agent is the one, under
distinction or differentiation of the different classes/items of the law, with the obligation to make the withholding. Upon
income. Under the Schedular, there is a separate treatment for receipt of income by the recipient, the tax had already been
compensation, separate treatment for professional/business deducted.
income, passive income, and capital gains. There is now a
Who are the withholding agents?
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system of income taxation to compensation income, while
Compensation income: employer continuing the system of net income taxation as regards
professional and business income.
If you are engaged in the business or practice of profession,
when you bill your clients for services rendered, upon receipt of
the check, the withholding tax had already been removed. *Note: Later on, after EDSA Revolution, Cory Aquino revised
the tax rates complained of by the people. From that time until
Illustration: now, you’ll notice that the rates of the individuals who are
compensation income earners or engaged in business or
A fee has been charged at P100,00 for the services rendered practice of profession have the same rates. From 5%-32%. We
to a client. Normally, the withholding tax is at 10%. Hence, only have the commonality insofar as the rates of their taxable
the P90,00 will be actually received. The P10,000 has been income.
withheld as income tax.

FORMS OF INCOME
PASSIVE INCOME
• Money
An example would be interest income on bank deposits. • Property
• Service

CAPITAL GAINS In receiving income, it is not always necessary that the income
that you are going to receive will be in the form of cash. Income
Capital gains are when you have properties which are not used is also recognized even if you will receive property. Likewise,
in business. For instance, you sell a house and lot. There is income is deemed recognized even if you receive a rendition of
capital gains tax on the sale of the real property. A tax is already service.
collected unlike before. Before, the gains are declared on an
annual basis. Under the global, there is only one return to be For instance, you are a lawyer and you are able to help
filed. You consolidate the income you have already earned someone. Then the client has no money, in turn, he’ll render
during the year, claim the deductions, then determine your services to you as payment. He subsequently becomes your
taxable income. From the taxable income you apply it to the driver. Hence, rendering such service(driving) is considered as
rates. Then that’s the income tax you are going to pay. We payment to the lawyer.
shifted from that and introduced the schedular.
A combination of cash, property or service is also allowed.

SITUS OF TAXATION
Case Digest by Dean
Sison vs. Ancheta Situs is the place of taxation. The place where the income is
due. For purposes of income tax, the situs is determined based
When the simplified net income tax scheme or gross modified on the following:
income taxation was introduced, we recognized as early as that,
the 4 categories of income. Under that system, there were 1. citizenship of the taxpayer
separate traits for compensation income. To the individuals 2. residence of taxpayer
engaged in business or practice of their profession were also 3. source of income
subject to different set of rates. A group of professionals
challenged the validity of that law. They questioned as to why If you are a citizen of the state, the income you earned is subject
the rates for the compensation income earners are lower to income tax by reason of your citizenship. If you are an alien
than those earning business income. residing in that state, the state taxes your income by reason of
your residence. If you are an alien not residing in that country
Ruling: Apparently, what misled petitioner is his failure to take but you are deriving income from that country, you are still taxed
into consideration the distinction between a tax rate and a tax based on the source of the income.
base… Taxpayers may be classified into different categories. To
repeat, it. is enough that the classification must rest upon Likewise, in our jurisdiction, we follow that rule on situs. We tax
substantial distinctions that make real differences… Taxpayers income on the basis of citizenship, residence or source.
who are recipients of compensation income are set apart as
a class. As there is practically no overhead expense, these
taxpayers are not entitled to make deductions for income tax DETERMINATION OF SOURCE
purposes because they are in the same situation more or less.
On the other hand, in the case of professionals in the practice As a rule, it is not the place of payment which determines where
of their calling and businessmen, there is no uniformity in the the income was earned.
costs or expenses necessary to produce their income. It would
not be just then to disregard the disparities by giving all of them Income Source
zero deduction and indiscriminately impose on all alike the same
tax rates on the basis of gross income. There is ample
justification then for the Batasang Pambansa to adopt the gross
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Compensation for services place of performance of By Shahata Tagtagan
rendered service (not the place of
st
payment) (NOTE: Sorry guys hindi ko narecord ang 1 3 minutes (approx)
na discussion ni Dean. Pero sure ako na Section 31 lang ang
*Note: A talent receiving diniscuss nya na namiss ko. Let me cite the provision here and
compensation in this country but put some discussion based on the Casasola book. J)
the performance was made

abroad, the income shall be
considered as an income earned SECTION 31 – TAXABLE INCOME DEFINED – The term
outside the Philippines (income ‘taxable income’ means the pertinent items of gross income
without). Because that is the specified in this Code, less the deductions and/or personal
place of performance of the and additional exemptions, if any, authorized for such types
service. of income by this Code or other special laws.

Rental income location of the property Taxable income refers to the gross income subject to tax, less
the deductions, whether itemized or optional standard
*If the property is found abroad, deductions, and/or personal and additional exemptions, if any,
it is a foreign sourced income. If authorized for such type of income. This term refers to the “tax
in the Philippines, the rental
base”.
income is deemed earned in the
Philippines.
For individuals who are employed, it is the income after
Royalties or Gains derived place of use of the deducting the exclusions and the exemptions.
from the use of intellectual intangibles For individuals engaged in trade or business or in the practice of
property their profession, it is the income after deducting exemptions.
Gains on sale of real property location of the property For corporations and other juridical entities, taxable income
would mean the net income, also after deducting the itemized
deductions or the optimal standard deductions of 40%, at the
Gain on sale of real property place of sale
option of the taxpayer.

*Even if the product is found in
the Philippines but the Computation of taxable income – must be computed with
consummation was in Hongkong respect to a fixed period. That period is twelve months ending
st
then it is an income without. December 31 of every year, except in the case of a corporation
filing returns on a fiscal year basis, in which case taxable income
Sale of merchandise place of sale will be computed on the basis of such fiscal year.
Interest income residence of the debtor
DEAN’S DISCUSSION PROPER
*Contract of loan having a Principle involving taxation: Income pertains to the flow of
lender-borrower relationship, the wealth which goes into the hands of the taxpayer other than
source of income is the return of capital. This gross income makes all income derived
residence of the debtor. Lender from whatever source including but not limited to the following
is in the Philippines, borrower is items:
from Hongkong. Interest income SECTION 32. GROSS INCOME
is earned in Hongkong.
(A) General Definition – Except when otherwise

provided in this Title, gross income means all
Dividend Income residence/office of the
income derived from whatever source, including, but
corporation
not limited to the following items:
Dividends are profits earned
(1) Compensation;;
by a corporation distributed * If prinicipal office is in the US
(2) Gross income derived from the conduct of trade
to its stockholders. and you are a Filipino
stockholder residing in the or business or the exercise of a profession;;

Philippines, the income is (3) Gains derived from dealings in property;;
earned in the US. It is not the (4) Interest;;
place of payment that (5) Rents;;
determines the source of the (6) Royalties;;
income but the office of the (7) Dividends;;
corporation. Hence, it is an (8) Annuities;;
income earned outside of the
(9) Prizes and winnings;;
Philippines.
(10) Pensions;; and
(11) Partner’s distributive share from the net income
Mining place where the mine is
of the general professional partnership.
located

Farming place where the farm is
The gross income is defined under Section 32 by providing a list
located
of what would be considered as income, but the list is not limited

only to the items enumerated. From this list of 1 – 11, these are

not only the sources of your gross income. For purposes of

income taxation, or even for purposes of taxation, whether
August 11, 2016
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the source is lawful or unlawful, it will still be taxable, unlike these allowances will not form part of the compensation
in imposition of license fee which is normally imposed on income. While there may be expenses on the part of
legitimate activities. But for purposes of tax, in particular income, the employer, it is not income on the hands of the
whether you derive income from, say, drag race, prostitution, employee.
gambling, other vices, all these income are still taxable. If you
want to, you may be made to declare these sources of income, On the other hand, if the allowances will NOT
whether legitimate or illegitimate sources. require the employee to provide receipts, like add
on na lang yun sa sweldo nya, no requirement to
1) Compensation. It pertain to compensation for services liquidate and account for them, then that
in whatever form paid, including but not limited to fees, allowances will form part of his taxable
salaries, wages, commissions, and similar others. For compensation income. Those allowances will be
subject to tax, including his salaries and wages.
purposes of compensation income, regardless of

whatever form the services were paid, it could still be 2) Gross income derived from the conduct of trade or
taxable compensation income and they form part of business or the exercise of a profession – When in
your taxable income. the course of the conduct of the business, income was
derived, then that income is also taxable. Or in the
There are employers who will provide mere allowance,
exercise of a profession, there is professional income
board and lodging, or representation. All these will form
part of the compensation income of the employee. in the performance of profession, then a professional
There is the rule we call “for the convenience of the income is recognized, and therefore also taxable.
employer” rule – the board and lodging and meal
allowance are provided by the employer, because
the employer has to have that person (e.g driver). 3) Gains derived from dealings in property - This
He has to have the person available 24 hours because pertains to transactions where gain is derived when
of the nature of the profession. The employer will properties are sold, exchanged or conveyed, whether
provide housing and meals.
real or personal properties. For as long as there will be

In that occasion, will these board and lodging and the a gain or profit in those dealings, the gain or profit will
meals and other facilities be included as part of this also be a taxable income.
compensation income?
NO MORE, because these facilities are extended to the
employee which are for the convenience of the 4) Interest - It pertains to the use or forbearance of
employer. money. In a contract of loan, the lender will impose an
interest on the money borrowed by the borrower. An
(To reiterate: If facilities are provided for the interest income is earned in the loan, then that interest
convenience of the employer, these allowances will no
income is also a taxable income.
longer form part of the taxable compensation income
of the employee, in accordance with the “for the
convenience of the employer” rule. They are expenses
on the part of the employer;; it will not be an additional 5) Rents - Rental income for the use, or as a
taxable compensation income on the part of the consideration for the use of the property. The lessee
employee. What will be taxable perhaps are the wages pays rentals to the lessor, then in the hands of the
and salaries). lessor, that is a rental income, and therefore taxable.

There are also employers, especially those engaged in
business, where representation is provided. Gas 6) Royalties – This pertains to the consideration for the
allowance, or even service vehicle, or vehicle use of intangibles/intellectual properties or the use of
allowance is provided by the employer, which are in
the trade name or trademark, where the owner is
pursuit of his trade or business.
If these allowances will require the employee: entitled to the payment of royalties. In the hands of the
a) to account how they were spent;; owner of the trade name or trademark, that is a taxable
b) provide receipts;; and income.
c) return any excess, 7) Dividends – These are distribution of profits, as
earned by the corporation, to the stockholders or
then these allowances will not form part of the business partner in a partnership. That is considered
compensation income in the hands of the as taxable dividends.
employee. Meron kang mga salesman, sales
representative. They go around promoting the
business, to get customers. The employer will provide 8) Annuities - Like interest income, this pertains to
them for this __. May sasakyan sila, gasoline,
periodic payment. There is a fund set up, and that fund
representation etc. However, if these allowances will
require them to liquidate or account or provide receipts earns or generates income in the form of annuities.
on how they were spent, then return any excess, then This is taxable income in the hands of the beneficiary.
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the amounts of any damages received, whether by
suit or agreement, on account of such injuries or
9) Prizes and winnings - There are conditions and sickness.
requirements for their exclusion. However as a rule, (5) Income Exempt under Treaty. - Income of any kind,
these are taxable. to the extent required by any treaty obligation
binding upon the Government of the Philippines.

10) Pension - In the event you retire, you receive
pensions. These pensions include retirement pay and
1) Life Insurance - How is this excluded? It is excluded
separation pay. They are taxable, as a rule, because
when the insured dies, and the insurance company
they are payment for services rendered. They will be
faces the heirs/beneficiaries. On the death of the
excluded only when they comply with the requirements
insured, the proceeds of the life insurance policy are
for purposes of exclusion.
the receipt (?) of the proceeds income. Under 32 b (1),

life insurance proceeds are not income, because what
11) Partner’s distributive share from the net income of the heirs/beneficiaries receive pertains to return of
the general professional partnership - In the case of capital, because that is an indemnity for the loss of life.
the professional partnership, this pertains to the Ano na ang kapalit ng life? Pera na. Namonetize ang
exercise of a common profession. The partnership life by reason of the death of the insured. What you
earns income from the exercise of a common receive actually is the return of capital, being contracts
profession. However, when we go to Section 26, the of indemnity.
partnership is not a taxable person (the professional
partnership). The taxable persons are the professional (NOTE: Dean started saying “#2 Amount received”
pero hindi nya tinuloy. So I’m guessing part pa rin ito
individuals in that partnership. The individual
ng #1) Another feature (?) of insurance is when they
partner’s distributive share is a taxable income. are paid in installments. Say coverage is for P500k,
The income of the professional partnership per se then you are paid in installments. When you add up all
is not a taxable entity. the installment payment, naging P560k, then there is
income. The income is P60k, the difference of the
principal coverage/principal amount of the policy. The
Again, these items from 1-11 are just some of the sources of interest feature of the installment payment is
taxable income, but not limited only to them. There are other recognized as a taxable income.
sources. The rule is: as long as they would pertain to the
flow of wealth, which goes to the hands of the taxpayer 2) Amount received by insured as return of premium
other than return of capital, then that will be income. - There are insurance policies that, during their life,
there are amounts received by the insured. Say, on the
SECTION 32 (B) EXCLUSIONS FROM GROSS INCOME - 5thyr, the insured will receive this much, then on the
The following items shall not be included in gross income and th
10 yr, and towards the life of the policy. Amounts are
shall be exempt from taxation under this Title:
(1) Life Insurance. - The proceeds of life insurance received at certain point during the life of the policy.
policies paid to the heirs or beneficiaries upon the Are these amounts that you received, are they income?
death of the insured, whether in a single sum or Under b2, these amounts represent return of your
otherwise, but if such amounts are held by the premiums. The premium payments are the capital or
insurer under an agreement to pay interest thereon, the consideration that you paid (?) for that contract of
the interest payments shall be included in gross insurance. The payments you received by reason of
income. that feature in the policy are not actually income, but
(2) Amount Received by Insured as Return of they represent return of capital, or return of the
Premium. - The amount received by the insured, as premium. Your premium is your capital. There is no
a return of premiums paid by him under life income.
insurance, endowment, or annuity contracts, either
during the term or at the maturity of the term
mentioned in the contract or upon surrender of the 3) Gifts, bequest, and devices –
contract. When an heir/beneficiary receives a gift, bequest or
(3) Gifts, Bequests, and Devises. – The value of device, is the receipt of this property as a gift, bequest
property acquired by gift, bequest, devise, or or device, income?
descent: Provided, however, that income from such No. What you have received is a receipt of capital.
property, as well as gift, bequest, devise or descent When this capital will earn income or will have fruits,
of income from any property, in cases of transfers of then that is the time you recognize an income.
divided interest, shall be included in gross income. Example: few of the properties you received from the
(4) Compensation for Injuries or Sickness. - amounts estate are apartment dwellings. There are renters.
received, through Accident or Health Insurance or When you received the apartment, even when there
under Workmen's Compensation Acts, as are existing renters, that is still not income, but receipt
compensation for personal injuries or sickness, plus of capital. However, when you are the one starting to
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collect the rent from the renters, then this time it several items of income. Usually this is done on the
becomes your income. basis of reciprocity. Tax agreements/treaties which
would extend exemptions on the basis of reciprocity

are executive agreements which DO NOT operate
4) Compensation for injuries or sickness –
similar to an international treaty, where the latter will
(a) The amounts received for accidents, or
need senate ratification. Being an executive
(b) health insurance, or
agreement, there is no need for this to be approved by
(c) under Workman’s Compensation Act, or
the senate. Reciprocity means we will exempt that
(d) as compensation for personal injury or sickness
income from this foreigner in the Philippines provided
PLUS the amount of any damages received
whether by suit or agreement on account of such the Filipinos in that country will also be given similar
injuries/sickness exemption.
-> ARE EXCLUDED. Again, they are forms of
indemnity. The amounts you received are receipt
of capital;; you are being indemnified for the 6) Retirement benefits, pensions, gratuities, etc.
loss/accident. In the context of the damages, the
damages wherein an income is recognized, SECTION 32 (B)
pertains only to loss of income or loss of 6.) Retirement benefits received under Republic Act No. 7641
earning capacity, or loss of profits. By reason and those received by officials and employees of private
of the accident, you will be hospitalized;; you firms, whether individual or corporate, in accordance with a
incurred expenses in your confinement. You are reasonable private benefit plan maintained by the employer:
further indemnified for the loss of your income, you Provided, That the retiring official or employee has been in
were unable to work for 1month, and you were the service of the same employer for at least ten (10) years
indemnified for the loss of that income. and is not less than fifty (50) years of age at the time of his
retirement: Provided, further, That the benefits granted under
Are the amounts you received income? this subparagraph shall be availed of by an official or
(i) Insofar as to the other damages and employee only once. For purposes of this Subsection, the
indemnity (the expenses incurred for the term 'reasonable private benefit plan' means a pension,
confinement, for medicine etc, medical bills) gratuity, stock bonus or profit-sharing plan maintained by an
they are excluded as they represent return of employer for the benefit of some or all of his officials or
employees, wherein contributions are made by such
capital. They are forms of indemnity.
employer for the officials or employees, or both, for the
(ii) But the indemnity insofar as the loss of purpose of distributing to such officials and employees the
income, loss of earning capacity or loss of earnings and principal of the fund thus accumulated, and
profit, they will now be considered as wherein its is provided in said plan that at no time shall any
taxable income. part of the corpus or income of the fund be used for, or be
diverted to, any purpose other than for the exclusive benefit
Even if these were derived as a judgment in your favor, of the said officials and employees.
being the injured party, where the offender was
adjudged to be liable and was ordered to pay, still it will RECIT!!
not change whether the amount you received is income How are these retirement benefits become excluded?
or not. There will be income only when the damages What is R.A. 7641?
referred to would involve loss of earning cap, loss of How many retirement benefits are contemplated in that
income or loss of profit. provision?

In terms of moral, exemplary, actual etc damages, There are two.
they will be excluded. In the course of the litigation,
you entered into amicable settlement/compromise (1) Under R.A. 7641 (amending Art. 287 of the Labor Code);;
agreement. You agreed to the following indemnities - (2) Those received by officials and employees of private
that the offender will have to pay for your firms whether individual or corporate in accordance with a
hospitalization, damages, loss of income, then you REASONABLE PRIVATE BENEFIT PLAN maintained by the
have now to determine what items are to be excluded employer.
and the items to be considered as income.
(To reiterate: Insofar as loss of income or loss of The provision contemplates two types of retirements wherein the
earnings, those are the damages which will be law excludes from tax.
considered as taxable income.)
(1) When you retire under the Labor Code, the retirement
benefits have their own requirements. Hindi na inulit
5) Income exempt under treaty - The income of any kind dito as it made reference to R.A. 7641. Your retirement
to the extent required under a treaty obligation is pay will be excluded.
binding upon the Government of the Philippines. Here,
the Philippine Government enters into a treaty with (2) When your employer sets up reasonable private benefit
another country to exempt, for income tax purposes, plan. It pertains to pension, gratuity, stock bonus, or
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profit-sharing plan etc. The employer sets up its own, were already made known to the BIR for purposes of the
whether individual or corporate, reasonable private exemption.
benefit plan. Ibig sabihin, nagset-up sya ng sarili nyang
retirement fund, pension fund, etc. For purposes of the SECTION 32 (B)
6) (b) Any amount received by an official or employee or by
exclusion, these are the requirements, so that those
his heirs from the employer as a consequence of separation
retiring under the employer’s own benefit plan will be of such official or employee from the service of the employer
excluded. because of death sickness or other physical disability or for
any cause beyond the control of the said official or employee.
REQUIREMENTS:
Section 32 B, #6 (b) pertains to treatment of separation pay.
(a) It must be in accordance with a reasonable Payment on account of death, sickness or other physical
private benefit plan. This reasonable private disability or for any cause beyond the control of the official or
benefit plan should be one approved and employee, then the separation pay is excluded. For purposes
accredited by the BIR. It could not just set up of the exclusion, it does not only cover the death sickness or
private benefit plan without having this approved other physical disability of the employee but for any cause. All
by the BIR. other causes, for as long as they are involuntary or beyond
(b) Length of service – minimum length of service the control of said employee, the separation pay shall be
requirement is at least 10 years. excluded. However, if the cause of the separation is one
(c) Age requirement – not less than 50 years of age. within the control of the employee (voluntary), separation
(d) It must be availed of the employee only once. pay is taxable. Example is resignation. In labor law, when you
resign, you are not entitled to separation pay. But despite that,
For purposes of exclusion, if you are retiring and the the employer extended separation pay. That separation pay
employer has its own retirement policy, the private becomes taxable.
benefit plan should comply with these requirements.
SCENARIO: If you resigned because you applied for job abroad.
When the employee retires under the reasonable private benefit The employer abroad told you to get the next flight, so you
plan at 49 years of age, would his retirement excluded or resigned. Your employer in the Philippines learned about it and
taxable? gave you separation pay. What is the treatment of that
separation pay? It will now be taxable because it was voluntary.
TAXABLE, because the requirement is that the employee must
be at least 50 years old. There are instances when despite resignation, the resignation
is not voluntary. Example: Business acquisition or business
If he retired at 50, but his length of service is only 8 years, will combination (merger, consolidation). The new owners will bring
the retirement benefit be excluded or taxable? the new managers. Previous managers will tender their
resignation, allowing the new management to have free hands
TAXABLE, because minimum length of service requirement is to run the business. The old managers will be given separation
at least 10 years. All the requirements must be complied with. pay. What is the treatment? The resignation is INVOLUNTARY
because they extended that courtesy for purposes of allowing
For purposes of exclusion, and for purposes of being taxed, the employer to have a free hand. Being involuntary in nature, it
what is the essential requirement? is beyond the control of said employees, therefore the
separation pay is excluded.
All the four requirements must be complied with.

Absent one requirement, what will happen? August 16, 2016
By April Liz Pareño
The retirement shall be TAXABLE.
(To reiterate: All those requisites must be there for purposes of *Continuation of Sec. 32B, Par. 6 (Exclusion from Gross income
the exclusion. Otherwise, requirement benefits shall be taxable.) of Retirement benefits, etc.)
Supposed the employer sets up a retirement plan as approved
by the BIR, then his retirement policy is that kelangan ng 20
(b) Any amount received by an official or employee or by his
years of service, then the age now is 65yo. Then the employee
heirs from the employer as a consequence of separation of
retires at the age of 60 and rendered 20 years of service.
such official or employee from the service of the employer
Employer told him that is taxable! Employee insisted that is not
because of death sickness or other physical disability or for
taxable because I complied with the requiremens under the
any cause beyond the control of the said official or employee.
NIRC! Decide. If the employer sets up a higher standards for
purposes of retirement (length of service/retirement age is
higher than that set by law), that has to be followed. That will Separation pay, as a rule, are to be taxable because they are
now be the basis for the retirement. The employee could not given also for services rendered. They will be excluded when the
retire under the requirements of NIRC. If employer sets up ground for the separation is one which is involuntary or one
higher requirements than NIRC, then the employee retires beyond the control of separated employee.
lower than that set up by the employer, the retirement now
becomes taxable. The requirements of the retirement policy of c), treatment of social security benefits from abroad,
the employer have to be followed, because these policy retirement gratuities, pensions and other similar benefits
requirements, including the reasonable private benefit plan,
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received by resident or nonresident citizens of the Philippines c) Prizes and Awards. - Prizes and awards made primarily
or aliens who come to reside permanently in the Philippines in recognition of religious, charitable, scientific, educational,
from foreign government agencies and other institutions, artistic, literary, or civic achievement but only if:
private or public.
(i) The recipient was selected without any action on his part
Take note that the source of these benefits are from foreign to enter the contest or proceeding;; and
government agencies or from foreign institutions whether private
or public. The law based the exclusion of this retirement from tax (ii) The recipient is not required to render substantial future
because it is foreign source. services as a condition to receiving the prize or award.
(d) Payments of benefits due or to become due to any person As a prior rule, under 32(a), prizes and winnings are taxable. For
residing in the Philippines under the laws of the United States the purposes of their exclusion you have prizes and awards
administered by the United States Veterans Administration. under Section C.
This is in connection with benefits received by our immigrants Under (i), when he join the contest and sent his application to
from the World War II who are still around and still continue to join and he won. Despite that it was a recognition of religious,
receive benefits from the US. We grant the exclusion. charitable, scientific, etc., prizes and awards are now taxable
because the recipient took action to enter the contest. But when
(e) Benefits received from or enjoyed under the Social he was nominated without him knowing about such fact, for that
Security System in accordance with the provisions of recognition or for that prize and award, you were selected, then
Republic Act No. 8282. comes the exclusion.
Under (ii), while in some competitions where prizes and awards
are given, the recipient is made to render future services but still
there’s an exclusion because it was not substantial. When you
(f) Benefits received from the GSIS under Republic Act No. say substantial, it means he has to promote this contest, he
8291, including retirement gratuity received by government becomes an ambassador for that certain competition wherein he
officials and employees. was given a prize and award and where it will take his time and
devote his time for that recognition, prize and award. The
The retirement gratuity received by the retiring officials and services now being substantial, will now require taxability of that
employees would cover the terminal leave pay as well as prizes.
unused leave credits which are not convertible to cash. The law
excludes them from the tax. If the services rendered is not substantial, he is made to
promote but only for some conditions. For example, he is made
(7) Miscellaneous Items. - to promote on certain dates like for 1 year, tatlong araw then in
selected dates(???). It’s not really substantial that will take up
(a) Income Derived by Foreign Government. - Income his time, then exclusion will be invoked and the prizes and
derived from investments in the Philippines in loans, stocks, awards will no longer be taxable.
bonds or other domestic securities, or from interest on
deposits in banks in the Philippines by (i) foreign (d) Prizes and Awards in sports Competition. - All prizes and
governments, (ii) financing institutions owned, controlled, or awards granted to athletes in local and international sports
enjoying refinancing from foreign governments, and (iii) competitions and tournaments whether held in the Philippines
international or regional financial institutions established by or abroad and sanctioned by their national sports
foreign governments. associations.
We exclude that because the rule on international comity. We The one who won in the Olympics, so the prizes and awards
do not tax another sovereign. Income derived from investments granted in local as well as international sports competition,
in the Philippines by foreign governments, financial institutions whether in the Philippines or abroad. One important requirement
who are in control or enjoying the financing from foreign is that the participation must be recognized and approved and
governments. Then you have the national/regional financial allowed by the respective sports association.
institutions established by foreign governments
Eg: A participated in the sports competition, while his sport is
(b) Income Derived by the Government or its Political weight lifting, but he participated abroad as player in chess, then
Subdivisions. - Income derived from any public utility or from the prizes and awards will be subject to tax.
the exercise of any essential governmental function accruing
to the Government of the Philippines or to any political In one case, the chess players of the Philippines have been
subdivision thereof. divide because of Politics. Some went to abroad, participated in
int’l sports competition without the sanction from their respective
This is the rule on immunity of government from tax. The sport association. They won, received cash prizes which were
government does not tax itself and it excludes taxing itself when subjected to tax.
it performs governmental function.
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For purposes of the exclusion when there are competitions here What will happen here, is yung salaries less contributions.
or abroad, local or int’l, should be one allowed by your national Whether SSS in private, GSIS in in government, PhilHealth,
sports association. PAG_IBIG or union dues if it’s an organized standard. Ibawas
yan to arrive at your net salary. The net now is now the tax based
(e) 13th Month Pay and Other Benefits. - Gross benefits for purposes of the income tax.
received by officials and employees of public and private
entities: Provided, however, That the total exclusion under (g) Gains from the Sale of Bonds, Debentures or other
this subparagraph shall not exceed Thirty thousand pesos Certificate of Indebtedness. - Gains realized from the same
(P30,000) which shall cover: or exchange or retirement of bonds, debentures or other
certificate of indebtedness with a maturity of more than five
(i) Benefits received by officials and employees of the (5) years.
national and local government pursuant to Republic Act No.
6686;; These are excluded because of the maturity of this
indebtedness, what we call long term investments.
(ii) Benefits received by employees pursuant to Presidential
Decree No. 851, as amended by Memorandum Order No. 28, (h) Gains from Redemption of Shares in Mutual Fund. -
dated August 13, 1986;; Gains realized by the investor upon redemption of shares of
stock in a mutual fund company as defined in Section 22 (BB)
(iii) Benefits received by officials and employees not covered of this Code.
by Presidential decree No. 851, as amended by
Memorandum Order No. 28, dated August 13 1986;; and They are exempted for purposes of giving incentive in these
forms of investments and these redemption also of shares in
(iv) Other benefits such as productivity incentives and Mutual fund operates as a redemption of Capital.
Christmas bonus: Provided, further, That the ceiling of Thirty
thousand pesos (P30,000) may be increased through rules We go back to Section 22. Definitions - When used in this Title:
and regulations issued by the Secretary of Finance, upon
recommendation of the Commissioner, after considering
(B) The term 'corporation' shall include partnerships, no
among others, the effect on the same of the inflation rate at
matter how created or organized, joint-stock companies, joint
the end of the taxable year.
accounts (cuentas en participacion), association, or
insurance companies, but does not include general
professional partnerships and a joint venture or consortium
formed for the purpose of undertaking construction projects
th
13 month pay is taxable since it forms part of your services or engaging in petroleum, coal, geothermal and other energy
rendered. For purposes of exclusion, the law sets a limit. You operations pursuant to an operating consortium agreement
have RA 10653 where the exclusion is up to P 82, 000.00 That under a service contract with the Government. 'General
is the maximum amount. professional partnerships' are partnerships formed by
persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from
Eg: You receive a13th month pay of 100k, the 82k is exempted,
th engaging in any trade or business.
the excess is taxable. The 13 month pay whether received from
public or private will take into different forms. Merong iba
th th
nagbibigay ng 14 month pay or 6 month bonus, etc.
Still, it will be consolidated for as long as it will not exceed 82k. (E) The term 'nonresident citizen' means:
Since this will be annualized, pag nag-exceed, the excess will
be subject to tax. The 82k is the one that is excluded. (1) A citizen of the Philippines who establishes to the
satisfaction of the Commissioner the fact of his physical
(f) GSIS, SSS, Medicare and Other Contributions. - GSIS, presence abroad with a definite intention to reside therein.
SSS, Medicare and Pag-ibig contributions, and union dues of
individuals. (2) A citizen of the Philippines who leaves the Philippines
during the taxable year to reside abroad, either as an
They are excluded because in the determination of your tax in immigrant or for employment on a permanent basis.
your salary, it is based on the gross amount without the benefit
of the deduction. Like yung mga cash advances mo, utang, will (3) A citizen of the Philippines who works and derives income
be subject to salary deduction. The withholding tax, the income from abroad and whose employment thereat requires him to
tax of your wages is not based on the net pay but on the gross be physically present abroad most of the time during the
amount that you are going to receive without the benefit taxable year.
deduction. If these contributions are tax free, the tax base of the
withholding tax against your salaries will be adjusted.
(4) A citizen who has been previously considered as
nonresident citizen and who arrives in the Philippines at any
time during the taxable year to reside permanently in the
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Philippines shall likewise be treated as a nonresident citizen
for the taxable year in which he arrives in the Philippines with
respect to his income derived from sources abroad until the FF) The term 'long-term deposit or investment
date of his arrival in the Philippines. certificates' shall refer to certificate of time deposit or
investment in the form of savings, common or individual trust
(5) The taxpayer shall submit proof to the Commissioner to funds, deposit substitutes, investment management accounts
show his intention of leaving the Philippines to reside and other investments with a maturity period of not less than
permanently abroad or to return to and reside in the five (5) years, the form of which shall be prescribed by the
Philippines as the case may be for purpose of this Section. Bangko Sentral ng Pilipinas (BSP) and issued by banks only
(not by nonbank financial intermediaries and finance
companies) to individuals in denominations of Ten thousand
pesos (P10,000) and other denominations as may be
prescribed by the BSP.
(K) The term 'withholding agent' means any person
required to deduct and withhold any tax under the provisions
of Section 57. More than 5 years, long term investment. Less than 5 years,
short term.
Our Income Tax System has a withholding of taxes feature

under the principle of “pay as you go”. Our passive income and Section 23. General Principles of Income Taxation in the
capital gains are already subject to tax at the time or source of Philippines. - Except when otherwise provided in this Code:
the income. Even the income has not yet received by the tax
payer, the tax has already been collected and claimed through (B) A nonresident citizen is taxable only on income
the withholding agent. What is received by the income recipient derived from sources within the Philippines;;
of the beneficiary *** is already net of tax.
(C) An individual citizen of the Philippines who is
(P) The term 'taxable year' means the calendar year, or the working and deriving income from abroad as an
fiscal year ending during such calendar year, upon the basis overseas contract worker is taxable only on income
of which the net income is computed under this Title. 'Taxable derived from sources within the Philippines:
year' includes, in the case of a return made for a fractional Provided, That a seaman who is a citizen of the
part of a year under the provisions of this Title or under rules Philippines and who receives compensation for
and regulations prescribed by the Secretary of Finance, upon services rendered abroad as a member of the
recommendation of the commissioner, the period for which complement of a vessel engaged exclusively in
such return is made. international trade shall be treated as an overseas
contract worker;;
Individuals are required to follow the calendar year as the tax
year, regardless of citizenship. In case of corporations, the (D) An alien individual, whether a resident or not of
taxable year may be the calendar year or the fiscal year. the Philippines, is taxable only on income derived
from sources within the Philippines;;
For tax purposes, you will see that the terms are defined in the
negative. Like for example, a fiscal year, a period of 12 months (E) A domestic corporation is taxable on all income
that does not begin in December and does not end in January. derived from sources within and without the
Section 39 on how capital assets are assigned, they are also Philippines;; and
defined in the negative.
(F) A foreign corporation, whether engaged or not in
(Z) The term 'ordinary income' includes any gain from the trade or business in the Philippines, is taxable only
sale or exchange of property which is not a capital asset or on income derived from sources within the
property described in Section 39(A)(1). Any gain from the sale Philippines.
or exchange of property which is treated or considered, under
other provisions of this Title, as 'ordinary income' shall be
treated as gain from the sale or exchange of property which
is not a capital asset as defined in Section 39(A)(1). The term
The rules are simple.
'ordinary loss' includes any loss from the sale or exchange of
property which is not a capital asset. Any loss from the sale
or exchange of property which is treated or considered, under So far as Individuals, resident citizens lang ang taxable for all
other provisions of this Title, as 'ordinary loss' shall be treated sources. The rest of them, Philippine source income lang.
as loss from the sale or exchange of property which is not a
capital asset. I. Individuals
Capital gain – gain on a capital asset. A. Citizens
When there is sale or disposition of ordinary assets, we call it § Resident citizens : taxable for all sources within and
ordinary income. When there is loss, we call it ordinary loss. without ( Philippine or Foreign Source)
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§ Non-resident citizens : taxable only on sources within individually and separately taxed like individuals. It will be the
individual professional partners who are taxable not the
B. Aliens : Regardless of their status, taxable only on sources professional partnership.
within
III. ESTATES : pertains to the taxpayer represented by the
executor or administrator or one of the surviving
§ Resident alien spouse or the children of the decedent, wherein the
§ Non-resident alien : decedent left behind income-generating properties
a) Engaged in trade or business prior to his death. The estate, while earning income
b) Not engaged in trade or business may still be taxable as an estate. Tax will still be
collected against estate, it will be treated as a separate
II. CORPORATIONS taxable person from the personality of the administrator
or executor.
A. Domestic corporation: is one which is organized and
created under Philippine laws. Taxable on all sources Trust created by the grantor or for the benefit of the beneficiary.
within and without. All income in the Philippines are The trust is treated as a separate taxable person form the person
taxable as well as the foreign sourcre income. of the grantor. So when the trust earns income because property
or money is in the trust, then it is invested, income is earned then
B. Foreign Corporation: one organized outside the it is treated as a separate taxable person from the grantor.
Philippines
In the case of estates, the property is in abroad the decedent is
earning income from that property. If the decedent is a citizen,
§ Resident Foreign Corporation : one with license that would be taxable. Being a citizen, the foreign source income
of the estate will be subject to income tax.
or authority to engage in business

In determining the taxability of the income:
§ Non-resident foreign Corporation: no authority 1) Know where is the income (Phil or outside)
to do business yet it earns income. We tax that 2) Know the earner (Filipino, Phil corp or alien, or foreign
because the source is in the Philippines. corp)
3) Determine the rate
The rule on situs will take place on the basis of citizenship,

residency and the source. In the case of citizens, we tax them
because of their citizenship. We tax the aliens because they Section 24. Income Tax Rates.
reside here. We tax the resident alien because the source of the
income is in the Philippines. That holds true, likewise, in the (A) Rates of Income Tax on Individual Citizen and Individual
case of corporations. Resident Alien of the Philippines.

In these categories, there are only two taxpayers that are An income tax is hereby imposed:
taxable on all sources: the Resident Citizens and the Domestic
Corporations. The rest of the entities, individuals are taxable (a) On the taxable income defined in Section 31 of this
only within. Code, other than income subject to tax under
Subsections (B), (C) and (D) of this Section, derived for
The third category is the partnership. As we have mentioned, each taxable year from all sources within and without
the term, “corporation” involves partnership. If you organize the Philippines be every individual citizen of the
among yourselves and you make a group, even if you are not Philippines residing therein;;
registered with the SEC, even if you do not have a business and
you engage in a regular business, your income will be taxable. (b) On the taxable income defined in Section 31 of this
You will be tax of your business partnership or professional Code, other than income subject to tax under
partnership. Subsections (B), (C) and (D) of this Section, derived for
each taxable year from all sources within the Philippines
C. Partnerships: by an individual citizen of the Philippines who is residing
outside of the Philippines including overseas contract
workers referred to in Subsection(C) of Section 23
• Business Partnership: one who is not in the exercise
hereof;; and
of a professional partnership (in the negative). They will

be taxed like the corporations.

(c) On the taxable income defined in Section 31 of this
• Professional partnership: one exercising a common
Code, other than income subject to tax under
profession. Under Section 26, they are not taxable.
Subsections (b), (C) and (D) of this Section, derived for
Taxable are the individual professional partnership.
each taxable year from all sources within the Philippines

by an individual alien who is a resident of the

Philippines.
If you set up a professional partnership to engage in the practice

of law, so you registered, agreed to such partnership, that is not
The tax shall be computed in accordance with and at the rates
taxable. It will be the individual partners who will bring along the
established in the following schedule:
respective share on the income of that partnership, they will be
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If you are husband and wife who are both income tax earners,
Not over 5% they are treated as separate taxable income persons. They file
P10,000……………………… their own separate income tax returns.

Over P10,000 but not over P500+10% of the
(B) Rate of Tax on Certain Passive Income.
P30,000…… excess over
P10,000
(1) Interests, Royalties, Prizes, and Other Winnings. - A final
Over P30,000 but not over P2,500+15% of the tax at the rate of twenty percent (20%) is hereby imposed
P70,000…… excess over upon the amount of interest from any currency bank deposit
P30,000 and yield or any other monetary benefit from deposit
Over P70,000 but not over P8,500+20% of the substitutes and from trust funds and similar arrangements;;
P140,000… excess over royalties, except on books, as well as other literary works and
P70,000 musical compositions, which shall be imposed a final tax of
ten percent (10%);; prizes (except prizes amounting to Ten
Over P140,000 but not over P22,500+25% of thousand pesos (P10,000) or less which shall be subject to
P250,000… the excess over tax under Subsection (A) of Section 24;; and other winnings
P140,000 (except Philippine Charity Sweepstakes and Lotto winnings),
Over P250,000 but not over P50,000+30% of derived from sources within the Philippines: Provided,
P500,000… the excess over however, That interest income received by an individual
P250,000 taxpayer (except a nonresident individual) from a depository
bank under the expanded foreign currency deposit system
Over P500,000 P125,000+34% of shall be subject to a final income tax at the rate of seven and
…………………………… the excess over one-half percent (7 1/2%) of such interest income: Provided,
P500,000 in 1998. further, That interest income from long-term deposit or
investment in the form of savings, common or individual trust
Section 24. Income Tax Rates. 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
Individual citizens do not speak whether resident or non-resident exempt from the tax imposed under this Subsection:
but speaks of a citizen in general. The aliens that are covered Provided, finally, That should the holder of the certificate pre-
here are only the resident aliens. The rates for this are 5-32% terminate the deposit or investment before the fifth (5th) year,
imposed on these citizens and individual resident aliens. a final tax shall be imposed on the entire income and shall be
deducted and withheld by the depository bank from the
The rates applicable are 5-32% are the income mentioned in proceeds of the long-term deposit or investment certificate
Section 24 A. all other income within or without which are not 24 based on the remaining maturity thereof:
B, C, D. you have to determine by exclusion. Those which are
passive income which are not B, capital gains which are not C Four (4) years to less than five (5) years -
will be taxed. 5%;;
The rates here is 5-32%, the application is cumulative. If the Three (3) years to less than (4) years -
taxable income is 100, 000.00. you compute it bracket to 12%;; and
bracket. It belongs to the bracket more than 70,000 but less than
140, 000. So the tax is 8, 500 plus 20% of the excess.
Eg: Tax due = 100, 000 Less than three (3) years - 20%
=8,500 + 205 (100k -70k)
=8,500 + 20% (30,000)
8,500 + 6,000
=14, 500 2) Cash and/or Property Dividends - A final tax at the
following rates shall be imposed upon the cash and/or
If your income is 1million, you get the maximum bracket. You will property dividends actually or constructively received by an
be taxed 125,000 + 32% of the excess of 500,000. Do the math. individual from a domestic corporation or from a joint stock
These rates were to apply on the individual citizen who is company, insurance or mutual fund companies and regional
residing outside the Philippines including OFW if they earn operating headquarters of multinational companies, or on the
income in the Philippines share of an individual in the distributable net income after tax
of a partnership (except a general professional partnership)
The non-resident citizens, the one referred to Section 24 A (i), in of which he is a partner, or on the share of an individual in the
letter B, the non-resident with income therein. On a resident net income after tax of an association, a joint account, or a
alien, for the income within which are not B, C, D. joint venture or consortium taxable as a corporation of which
he is a member or co-venturer:
Then you have the minimum wage earners, whether public or
private, are exempted from income tax. The wages include your
Six percent (6%) beginning January 1,
overtime, night shift, hazard pay, they will be exempted from tax.
1998;;
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Eight percent (8%) beginning January 1, years: Provided, finally, that if there is no full utilization of the
1999;; proceeds of sale or disposition, the portion of the gain
presumed to have been realized from the sale or disposition
Ten percent (10% beginning January 1, shall be subject to capital gains tax. For this purpose, the
2000. gross selling price or fair market value at the time of sale,
whichever is higher, shall be multiplied by a fraction which the
unutilized amount bears to the gross selling price in order to
Provided, however, That the tax on determine the taxable portion and the tax prescribed under
dividends shall apply only on income paragraph (1) of this Subsection shall be imposed thereon.
earned on or after January 1, 1998.
Income forming part of retained earnings
as of December 31, 1997 shall not, even if
declared or distributed on or after January
1, 1998, be subject to this tax. August 18,2016
Jennifer Lim
(C) Capital Gains from Sale of Shares of Stock not Traded
in the Stock Exchange. - The provisions of Section 39(B) GOING BACK TO SECTION 24.
notwithstanding, a final tax at the rates prescribed below is
hereby imposed upon the net capital gains realized during the
taxable year from the sale, barter, exchange or other
disposition of shares of stock in a domestic corporation, SEC. 24. Income Tax Rates. -
except shares sold, or disposed of through the stock
exchange.
(A) Rates of Income Tax on Individual Citizen and Individual
Resident Alien of the Philippines.-
Not over 5%
P100,000……………………………
On any amount in excess of 10% (1) An income tax is hereby imposed:  
P100,000……

(a) On the taxable income defined in Section 31 of this Code,
D) Capital Gains from Sale of Real Property. -
other than income subject to tax under Subsections (B), (C) and
(1) In General. - The provisions of Section 39(B) (D) of this Section, derived for each taxable year from all sources
notwithstanding, a final tax of six percent (6%) based on the within and without the Philippines be every individual citizen of
gross selling price or current fair market value as determined
in accordance with Section 6(E) of this Code, whichever is the Philippines residing therein;;
higher, is hereby imposed upon capital gains presumed to
have been realized from the sale, exchange, or other
(b) On the taxable income defined in Section 31 of this Code,
disposition of real property located in the Philippines,
classified as capital assets, including pacto de retro sales and other than income subject to tax under Subsections (B), (C) and
other forms of conditional sales, by individuals, including
estates and trusts: Provided, That the tax liability, if any, on (D) of this Section, derived for each taxable year from all sources
gains from sales or other dispositions of real property to the within the Philippines by an individual citizen of the Philippines
government or any of its political subdivisions or agencies or
to government-owned or controlled corporations shall be who is residing outside of the Philippines including overseas
determined either under Section 24 (A) or under this contract workers referred to in Subsection(C) of Section 23
Subsection, at the option of the taxpayer.
hereof;; and
(2) Exception. - The provisions of paragraph (1) of this
Subsection to the contrary notwithstanding, capital gains (c) On the taxable income defined in Section 31 of this Code,
presumed to have been realized from the sale or disposition
of their principal residence by natural persons, the proceeds other than income subject to tax under Subsections (B), (C) and
of which is fully utilized in acquiring or constructing a new (D) of this Section, derived for each taxable year from all sources
principal residence within eighteen (18) calendar months
from the date of sale or disposition, shall be exempt from the within the Philippines by an individual alien who is a resident of
capital gains tax imposed under this Subsection: Provided, the Philippines.
That the historical cost or adjusted basis of the real property
sold or disposed shall be carried over to the new principal
residence built or acquired: Provided, further, That the In Section 24, it refers to the rates imposed to the tax payers w
Commissioner shall have been duly notified by the taxpayer ho are citizens whether resident or non-resident and then to the
within thirty (30) days from the date of sale or disposition resident alien.
through a prescribed return of his intention to avail of the tax
exemption herein mentioned: Provided, still further, That the Section 24(A), we have the rates of 5-32 %. These rates will b
said tax exemption can only be availed of once every ten (10) e used for the compensation or income of citizens and resident
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TAXATION 1

aliens as well as all other types of income not subject to the pre
ferential tax rates. Provided, however, That the tax on dividends shall apply only on
income earned on or after January 1, 1998. Income forming part
So if you are a citizen and resident alien and your income is not
under paragraphs b, c and d then the rates applicable to you wi of retained earnings as of December 31, 1997 shall not, even if
ll be 5- 32%. Because b, c and d are preferential tax rates for s declared or distributed on or after January 1, 1998, be subject to
pecific types of income.
this tax.
LET’S MOVE ON TO SECTION 24 (B), (C) AND (D).
In Section 24 (B):
Note: Dean said he will leave us responsible to read the codal p
rovisions. (1)The passive income on interests, royalties, prizes and other
winnings. There will be a tax or lien.
(B) Rate of Tax on Certain Passive Income: -

(1) Interests, Royalties, Prizes, and Other Winnings. - (2)Cash and/or property dividends

A final tax at the rate of twenty percent (20%) is hereby imposed
upon the amount of interest from any currency bank deposit and (C) Capital Gains from Sale of Shares of Stock not Traded
yield or any other monetary benefit from deposit substitutes and in the Stock Exchange. - The provisions of Section 39(B)
from trust funds and similar arrangements;; royalties, except on notwithstanding, a final tax at the rates prescribed below is
books, as well as other literary works and musical compositions, hereby imposed upon the net capital gains realized during the
which shall be imposed a final tax of ten percent (10%);; prizes taxable year from the sale, barter, exchange or other disposition
(except prizes amounting to Ten thousand pesos (P10,000) or of shares of stock in a domestic corporation, except shares sold,
less which shall be subject to tax under Subsection (A) of or disposed of through the stock exchange.
Section 24;; and other winnings (except Philippine Charity
Sweepstakes and Lotto winnings), derived from sources within Not over P 100,000 5%
the Philippines: Provided, however, That interest income
received by an individual taxpayer (except a nonresident On any amount in excess of P 100,000 10%
individual) from a depository bank under the expanded foreign
currency deposit system shall be subject to a final income tax at
In Section 24 (C) , the capital gains from the sale of shares of s
the rate of seven and one-half percent (7 1/2%) of such interest
tock and not traded in stock exchange.
income: Provided, further, That interest income from long-term
deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment So what about shares of stocks traded in stock exchange?
management accounts and other investments evidenced by
certificates in such form prescribed by the Bangko Sentral ng In so far as shares of stocks which are traded it is no longer an
Pilipinas (BSP) shall be exempt from the tax imposed under this income tax, but the applicable rates will be section 127 under th
Subsection: Provided, finally, That should the holder of the e percentage tax.
certificate pre-terminate the deposit or investment before the
fifth (5th) year, a final tax shall be imposed on the entire income In your NIRC, Section 127 is the tax on sale, barter, or exchng
and shall be deducted and withheld by the depository bank from e of shares of stock listed and traded through the local stock ex
the proceeds of the long-term deposit or investment certificate change or through initial public offering. Now, this item used to
based on the remaining maturity thereof: be in income taxation, nilipat nila and transferred it here to the p
ercentage tax. So insofar as shares of stocks traded in stock ex
Four (4) years to less than five (5) years - 5%;; change, it is no longer an income tax but a percentage tax;; ano
Three (3) years to less than (4) years - 12%;; and ng naiwan are the shares of stocks not traded in stock exchang
Less than three (3) years - 20% e.

(2) Cash and/or Property Dividends. - A final tax at the following
rates shall be imposed upon the cash and/or property dividends
actually or constructively received by an individual from a (D) Capital Gains from Sale of Real Property. -
domestic corporation or from a joint stock company, insurance
or mutual fund companies and regional operating headquarters (1) In General. - The provisions of Section 39(B)
of multinational companies, or on the share of an individual in notwithstanding, a final tax of six percent (6%) based on the
the distributable net income after tax of a partnership (except a gross selling price or current fair market value as determined in
general professional partnership) of which he is a partner, or on accordance with Section 6(E) of this Code, whichever is higher,
the share of an individual in the net income after tax of an is hereby imposed upon capital gains presumed to have been
association, a joint account, or a joint venture or consortium realized from the sale, exchange, or other disposition of real
taxable as a corporation of which he is a member or co-venturer: property located in the Philippines, classified as capital assets,
including pacto de retro sales and other forms of conditional
Six percent (6%) beginning January 1, 1998;; sales, by individuals, including estates and trusts: Provided,
Eight percent (8%) beginning January 1, 1999;; That the tax liability, if any, on gains from sales or other
Ten percent (10%) beginning January 1, 2000. dispositions of real property to the government or any of its
political subdivisions or agencies or to government-owned or
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TAXATION 1

controlled corporations shall be determined either under Section to the mentioned. It does not follow na hindi magiging taxable (
24 (A) or under this Subsection, at the option of the taxpayer;; yung condo), magiging taxable and the rate will be 5-32%.
(2) Exception. - The provisions of paragraph (1) of this Subsec
tion to the contrary notwithstanding, capital gains presumed to h
In Section 24 (D), it talks about capital gains from the sale of re ave been realized from the sale or disposition of their principal r
al property. esidence by natural persons, the proceeds of which is fully utiliz
ed in acquiring or constructing a new principal residence within
When we say capital gains it refers to capital assets. Meanin eighteen (18) calendar months from the date of sale or dispositi
g properties of the tax payers which are not used in the busines on, shall be exempt from the capital gains tax imposed under th
s. So the real property contemplated--- the sale of real property is Subsection: Provided, That the historical cost or adjusted bas
, are subject to the 6% capital gains tax or what we call the capi is of the real property sold or disposed shall be carried over to t
tal assets. Ex: the house and lot of the payer which are not use he new principal residence built or acquired: Provided, further, T
d in business. The applicable rate will be under section 24 (D). hat the Commissioner shall have been duly notified by the taxp
ayer within thirty (30) days from the date of sale or disposition t
hrough a prescribed return of his intention to avail of the tax ex
Now the application of the 6% will not only apply to the sale but
emption herein mentioned: Provided, still further, That the said t
also on the rules on exchange. So let's say 2 tax payers woul
ax exemption can only be availed of once every ten (10) years:
d like to exchange their properties ( lot 1 and lot 2), the excha
Provided, finally, That if there is no full utilization of the proceed
nge is subject to the capital gains tax. The owner of lot 1 will pa
s of sale or disposition, the portion of the gain presumed to hav
y for the capital gains tax and the owner of lot 2 will also pay th
e been realized from the sale or disposition shall be subject to c
e capital gains tax. So sila dalawa mag bayad with respect to th
apital gains tax. For this purpose, the gross selling price or fair
eir real properties in case of exchange of real properties. Becau
market value at the time of sale, whichever is higher, shall be m
se here, unless you are granted an exemption then can the exe
ultiplied by a fraction which the unutilized amount bears to the g
mption apply;; otherwise, the exchange will be taxable.
ross selling price in order to determine the taxable portion and t
he tax prescribed under paragraph (1) of this Subsection shall b
e imposed thereon.
ON OTHER DISPOSITION OF REAL PROPERTY

Take note also under Section 24 (D), the application of the exe
mption. Take note of the requisites for the purposes of the tax e
So what about donation? xemption from the real property tax. When you would dispose o
f your house to construct a new business and what are the requ
Donation will be not be covered by this because there is a sepa irements for purposes of the exemption.
rate treatment for donations Taken from previous TSN
The acquisition or construction of the new principal residence,
What about succession? you are required within 18 months from the date of sale or
disposition shall be exempt from the capital gains tax. Within the
There is also a separate tax treatement for succession period, for purposes of the exemption you have the following
requirements:
Other dispositions such as foreclosure of mortgage. If there is a
foreclosure of a real estate mortage then that portion, the highe 1. You avail of the exemption once
st bidder will be the one subject to the capital gains tax. Whethe 2. The historical cost or adjusted basis of the real
r you auction it under Article 3135 or under other current mortg property sold or disposed shall be carried over to the
age statutory provisions. new principal residence built or acquired.
3. 3. That the Commissioner shall have been duly
Now take note also that for purposes of the 6% the property notified by the taxpayer within thirty (30) days from the
must be found in the Philippines. date of sale or disposition through a prescribed return
of his intention to avail of the tax exemption
What if you have a real property or condo abroad tapos binenta 4. 4. The said tax exemption can only be availed of
mo, kumita ka, is the property taxable in the Philippines? And y only once every ten (10) years
ou are a resident citizen wherein you are taxed on all sources. i
s the 6% capital gains tax applicable? So to avail of the exemption, the proceeds shall be used to
acquire or construct. Remember the period within which you can
No more. because the criteria is a property located in the Philip avail of the exemption, you are only allowed to avail this once
pines. So ano ngayon gagamitin mo? Then you will use the 5-3 every 10 years when you would sell your principal or acquire or
2%. construct a new residence.
As we mentioned, the 5-32% is the applicable tax rates if they a
re foreign sourced income of a resident citizen or the income of
a citizen which are not subject to preferential tax rates or in NOW LET'S GO TO TAX ON TREATMENT ON NON-RESIDE
come which are not b c or d of this section. In other words, t NT ALIENS UNDER SECTION 25
he rates 5-32% will be the catch-all of other income not subject
Now remember a nonresident alien could be:
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3 Manresa 2016-2017
TAXATION 1

1. Non resident alien engaged in business and trade. For the clarification, you have still the rates of 20% or cash or
2. Nonresident alien not engaged in business and trade property dividends 20% or interest, royalties and other forms,
winning and prizes, except prizes 10k below except also for
PCSO and Lotto the rate is 20%.
SEC. 25. Tax on Nonresident Alien Individual. -
Royalties on books, literary works, musical compositions the
(A) Nonresident Alien Engaged in trade or Business Within
rate is still the same 10%. Royalties on books, literary works,
the Philippines. -
and musical compositions for the non-resident alien engaged in
trade or business, final withholding tax of 10%.
(1) In General. - A nonresident alien individual engaged in trade
or business in the Philippines shall be subject to an income tax As for the capital gains, the same treatment with Section 25 (C
in the same manner as an individual citizen and a resident alien & D)
individual, on taxable income received from all sources within Now Section 25(B) is the non-resident alien individual not enga
the Philippines. A nonresident alien individual who shall come to ged in trade or business. Yun pinaka simple because you have
uniform tax rate of 25% on all types of income without ded
the Philippines and stay therein for an aggregate period of more uction. But if they have other income or property in the Philippi
than one hundred eighty (180) days during any calendar year nes, the applicable rates are provided by Section25 (C&D).
shall be deemed a 'nonresident alien doing business in the So the Section 24 C&D and Section 25 wherein it involves tax
Philippines'. Section 22 (G) of this Code notwithstanding. payers with shares of stocks not traded and real properties as w
ell as assets then we have the same tax treatments. 5 &10% fo
r the shares of stock;; 6% for the capital gains tax of the rea

l property.
In Section 25A(1), it talks about the length of stay or the 180 d
Now, Section 25 C D &E are tax treatments for expats. Now w
ay period. For the purposes of the classification of the non-resid
hat is new here is that before Filipinos are given different tax rat
ent alien doing business or not doing business
es whereas these expats are given lesser rates. Now it is the s
ame, the Filipino counterpart receives the same tax treatment w
ith their foreign counterpart. kasi sa mga corporation may mga
• Less than 180 days = non-resident alien not engaged expats who have preferential tax treatments whether financial c
• More than 180 days but less than a year = a non- ompensation package and etc, the rates applied to these will be
resident alien engaged similar to their Filipino counterpart. I hold you responsible to rea
• A year or more = He will be now considered a resident d the other details L
alien.

For the non-resident alien not engaged in paragraph A(1) wher Taken from previous TSN:
e the applicable rate would still be the 5-32%. Section 25A (2)
on the applicable rates for all other income like cash or improve
ments and other specific treatment. These are the aliens employed by regional area headquarters,
regional operational headquarters of multinationals(C). Aliens
As per Dean: Just dissect that long provision. himay himayin ni
yo. I don’t know why it had to be worded this way. L employed by offshore banking units(D), and aliens employed by
petroleum service contractor (E).

Taken from previous TSN:
So you have here a rate of 15%. Now the rate of 15% given to
Yung royalties dito in any form, take note of the distinction in the expats will be the same rate to the Filipino counterpart. So
Section 24 of the royalties. Royalties on books, musical
composition and literary works, iba yong rate. Royalties to other Filipinos employed and occupied the same positions as those of
forms which are not musical composition, or other literary works the aliens/expats will also be given a similar rate of 15%.
you have a different rate.
Otherwise this would be a deprivation;; yong alien expats will
Pero pagdating sa non-resident alien engaged in trade, the
have a lesser rate than the Filipino counterpart.
royalties and any form, regardless of the form or kind of royalties
and as well as prizes except prizes amounting to 10k or less
shall be subject to tax under Subsection (B)(1) of Section 24 The Filipino counterpart, having the same position as the expats
which is 20% in tax rate. Which includes other winnings.
Depending on the length of time you pre-terminated, you have 5to 32%. So kung he is earning 5 million annually he will be
the rates 5, 12, and 20. given the maximum rate of 32%. Yong expat 15% lang. The

23
3 Manresa 2016-2017
TAXATION 1

partnership because the criteria under section 26 is an exe
Filipino counterpart will be given a similar rate, 15%.
rcise of a common profession. Kung lawyer lahat, lawyer. en
gineer lahat, engineer. cpa lahat, cpa. If you have an assortme
nt of professionals, while professional partnership siya but for ta
x purposes it will not be treated as such.
LET’S PROCEED TO SECTION 26 ON TREATMENT FOR GE
NERAL PROFESSIONAL PARTNERSHIPS. So when you went to that office, biglang may nag lagay ng stet
hoscope pero attorney hinahanap ko. The need of the client wa
SEC. 26. Tax Liability of Members of General Professional
s not met. so it will be taxed like a business partnership.
Partnerships. - A general professional partnership as such shall
Now in the case of DOMESTIC COPORATIONS IN SECTION
not be subject to the income tax imposed under this Chapter.
27. Like the resident citizen who is taxed on all sources;; domes
Persons engaging in business as partners in a general tic corporations are also taxed on all sources. The current rate t
hat we have now is 30%. This is 30% under taxable income an
professional partnership shall be liable for income tax only in
d the giving the benefit of deductions.
their separate and individual capacities.
Now there is an optional tax treatment in the case of corporatio
ns. Domestic corporations 15% of the gross income. We have t
For purposes of computing the distributive share of the partners, he law, but it is not in place or operationalized. What is being d
the net income of the partnership shall be computed in the same one is the regular corporate income tax rate.
manner as a corporation. Then SECTION 27(B), the proprietary educational institutions a
nd hospitals. So educational institutions and hospitals which ar
Each partner shall report as gross income his distributive share, e for profit shall pay a tax of 10% of their taxable income excep
t those covered under Section B meaning their passive income.
actually or constructively received, in the net income of the In other words, the educational income or hospital income will b
partnership. e subject to this preferential tax rate of 10% the taxable income
provided that it will be subject to the predominance test.
The general professional partnership is not subject to inco

me tax. Persons engaging in business aspartners in a general
professional partnership shall be liable for income tax only in th
eir separate and individual capacities. In other words, the profe
ssional partners are the ones separately and individually liable
not the partnership itself. What is this predominance test?
In the case of a business partneship, it will not be taxed under s The predominance of income test means that the proprietary ed
ection 26. It will be taxed as corporations under Sections 27 an ucational insittutions and hospitals will have the so called tuition
d 28. Why is that so? You have the definition of a taxable corp and non-tuition income & hospital and non-hospital income. Th
oration in Section 22(b). This includes partnerships no matter h at will now be the basis of the tax. In the case of educational ins
ow created or organized;; joint stock companies, joint accounts titutions, tuition and non-tuition. The rule here is that the 10% a
etc. pplicable tax rate is to be applied when the predominant incom
e is tuition. But if the predominant income is non-tuition, then th
e regular corporate income tax is applicable so it will now the th
(B) The term 'corporation' shall include partnerships, no matte
e total income.
r how created or organized, joint-stock companies, joint accoun
ts (cuentas en participacion), association, or insurance compan
ies, but does not include general professional partnerships and If more than 50% of the taxable income constitutes tuition, then
a joint venture or consortium formed for the purpose of underta you apply the 10% rate. If the predominant income meaning mo
king construction projects or engaging in petroleum, coal, geoth re than 50% of the total income is non-tuition, like rentals and y
ermal and other energy operations pursuant to an operating co ung ibang kinikita, whatever income derived to will be subject to
nsortium agreement under a service contract with the Governm the 30% income tax rate. So if the predominant tuition 10%;; i
ent. 'General professional partnerships' are partnerships for f non-tuition 30%.
med by persons for the sole purpose of exercising their commo
n profession, no part of the income of which is derived from eng The same rule applies to hospitals, if the predominant income i
aging in any trade or business. s hospital income then the 10% tax rate will apply. if it otherwis
e (non-hospital income), then apply the regular corporate incom
e tax of 30%.
What is the operative factor there? Exercising their common
profession.
Who are covered by these proprietary educational institutions?

So if you have a professional partnership of a certain corporatio
(taken from previous tsn/codal provision) A Proprietary
n, may doctor, lawyer architect, accountant. It renders multi-dis
educational institution' is any private school maintained and
ciplinary services and operates as a partnership. How do you ta
administered by private individuals or groups with an issued
x such when it does not suit the definition of a general professio
permit to operate from the Department of Education, Culture and
nal corporation? This time now it will be taxed as a business
24
3 Manresa 2016-2017
TAXATION 1

Sports (DECS), or the Commission on Higher Education
(CHED), or the Technical Education and Skills Development
(1) In General. - Except as otherwise provided in this Code, a
Authority (TESDA), as the case may be, in accordance with
corporation organized, authorized, or existing under the laws of
existing laws and regulations.
any foreign country, engaged in trade or business within the
Philippines, shall be subject to an income tax equivalent to thirty-
NOW SECTION 27 © ON THE GOVERNMENT-OWNED AND five percent (35%) of the taxable income derived in the
CONTROLLED CORPORATIONS, AGENCIES OR INSTRUM preceding taxable year from all sources within the Philippines:
ENTALITIES. Provided, That effective January 1, 2009, the rate of income tax
[22]
shall be thirty percent (30%).
Now, as a rule GOCCs are taxable persons subject to the inco
me tax rate of 30% on the regular income tax. In the case of corporations adopting the fiscal-year accounting
period, the taxable income shall be computed without regard to
How are they exempted? the specific date when sales, purchases and other transactions
occur. Their income and expenses for the fiscal year shall be
Unless the law of the charter grants so. Who are exempted fr deemed to have been earned and spent equally for each month
om here? GSIS, SSS, PhilHealth, Local Water Districts, and th of the period.
e PCSO. Dati andyan yung PAGCOR but it has been removed
under RA 9337. Now PAGCOR is a taxable person subject to in The corporate income tax rate shall be applied on the amount
come tax. computed by multiplying the number of months covered by the
new rate within the fiscal year by the taxable income of the
[23]
Now in Section 27(D), the passive income, capital gains from t corporation for the period, divided by twelve.
he sale of shares of stocks not traded as the same rate as indiv
iduals, tax income derived under the expanded foreign currency Provided, however, That a resident foreign corporation shall be
deposit system, intercorporate dividends (intercorporate dividen granted the option to be taxed at fifteen percent (15%) on gross
ds received by domestic corporation from another corporation s income under the same conditions, as provided in Section 27
hall not be subject to tax), and capital gains realized from the s (A).
ale, exchange, or disposition of lands and/ or buildings not actu
ally used in business meaning capital assets. Subject to the 6% Tax treatment Resident Foreign Coporations. These are corpo
similar to the capital gains tax of individuals. rations organized abroad authorized to do business in the Philip
pines also taxed at 30%. The non-resident foreign corporation w
Then Section 27(E), the application of the MCIT or the minimu ill also be subject to these tax treatments 30%. The treatment f
m corporate income tax. (we will discuss this next time) or computing the corporate income tax due either for 30% or 2
%.
Now in the case of corporations, they are subject to two tax trea
tments. Now there are Resident Foreign Corporations who are engaged
in a particular type of business. like number 3 international carri
1. Normal corporate income tax/ regular corporate incom ers doing business in the Philippines. (Singapore Air, etc.).
e tax or 30% of the taxable income. (3) International Carrier. - An international carrier doing
2. MCIT equivalent to 2 % of the gross income.
business in the Philippines shall pay a tax of two and one-half
So if you are a corporate entity, you will be subject to these tax 1
percent (2 /2 %) on its 'Gross Philippine Billings' as defined
treatement. But you will pay only one kind of tax even though y
ou are subject to different tax treatments. In other words, for pu hereunder:
rposes of the MCIT of paragraph (E), if at the end of the year (b
ut now it is done quarterly) , there will be two computations. I-co (a) International Air Carrier. - 'Gross Philippine Billings'
compute annually or quarterly the income actualized to comput refers to the amount of gross revenue derived from carriage of
e it at 30% of the taxable income compared with 2% of the gros persons, excess baggage, cargo, and mail originating from the
s income whichever is higher. If the MCIT is higher, you will pay Philippines in a continuous and uninterrupted flight, irrespective
such. if the 30% is higher, then you will pay the tax of 30%. of the place of sale or issue and the place of payment of the
ticket or passage document: Provided, That tickets revalidated,
The determination of what tax treatment wil apply to the corpor exchanged and/or indorsed to another international airline form
ation is kung saan yung malaking income tax. Depende sa com part of the Gross Philippine Billings if the passenger boards a
putation, if the MCIT is higher, it will have higher income tax du plane in a port or point in the Philippines: Provided, further, That
e, then you pay the MCIT. If the corporate income tax due is hig for a flight which originates from the Philippines, but
her than the mcit, then it will be subject to the regular corporate transshipment of passenger takes place at any part outside the
income tax rate. Philippines on another airline, only the aliquot portion of the cost
of the ticket corresponding to the leg flown from the Philippines
NOW LETS GO TO SECTION 28, to the point of transshipment shall form part of Gross Philippine
Billings.
[21]
SEC. 28. Rates of Income Tax on Foreign Corporations. -
(b) International Shipping. - 'Gross Philippine
Billings' means gross revenue whether for passenger, cargo or
(A) Tax on Resident Foreign Corporations. - mail originating from the Philippines up to final destination,
25
3 Manresa 2016-2017
TAXATION 1

regardless of the place of sale or payments of the passage or
banking units, local commercial banks, including branches of
freight documents.
foreign banks that may be authorized by the Bangko Sentral ng
Provided, That international carriers doing business in the
Pilipinas (BSP) to transact business with offshore banking units
Philippines may avail of a preferential rate or exemption from the
tax herein imposed on their gross revenue derived from the shall be exempt from all taxes except net income from such
carriage of persons and their excess baggage on the basis of an
transactions as may be specified by the Secretary of Finance,
applicable tax treaty or international agreement to which the
Philippines is a signatory or on the basis of reciprocity such that upon recommendation of the Monetary Board which shall be
an international carrier, whose home country grants income tax
exemption to Philippine carriers, shall likewise be exempt from subject to the regular income tax payable by banks: Provided,
the tax imposed under this provision. however, That any interest income derived from foreign currency
loans granted to residents other than offshore banking units or
As international carriers by air or by sea, they have a preferenti
al tax treatment. We do not tax them at 30%. They are taxed at local commercial banks, including local, branches of foreign
2.5 % on their gross billings without the benefit of deduction. Ku
banks that may be authorized by the BSP to transact business
ng ano yung gross income nila from tickets of passengers. The
y will be subject to on their gross billing and this holds true for i with offshore banking units, shall be subject only to a final tax at
nternational shipping. [24]
From previous TSN: gross billings refer to the amount of gross the rate of ten percent (10%). Any income of nonresidents,
revenue derived from carriage of persons, excess baggage whether individuals or corporations, from transactions with said
offshore banking units shall be exempt from income tax.
But what if it is an international carrier but it has no landing right
s in the Philippines? Because in order to avail the 2.5% tax on g
ross billings, it must be a resident foreign corporation authorize (5) Tax on Branch Profits Remittances. - Any profit remitted
d to do business in the Philippines and may landing rights sila.
What if they derive income from the Philippines but wala silang by a branch to its head office shall be subject to a tax of fifteen
landing rights? (15%) which shall be based on the total profits applied or
They will not be taxed under this as international carrier becaus earmarked for remittance without any deduction for the tax
e they pertain to revenues from passengers originating in the P component thereof (except those activities which are registered
hilippines but again they do not have landing right kumikita sila
dito but ang boarding, doon sa Thailand. From the Philippines t with the Philippine Economic Zone Authority). The tax shall be
o Bangkok na aircraft, applicable pa. but then again when you b collected and paid in the same manner as provided in Sections
oard that aircraft from Bangkok it will be something else.
57 and 58 of this Code: Provided, that interests, dividends, rents,
How will you tax it then? royalties, including remuneration for technical services, salaries,
It will be taxed at 30% which will operate as the tax rate use wages premiums, annuities, emoluments or other fixed or
d for those income outisde the preferential tax rates. 30% w determinable annual, periodic or casual gains, profits, income
ill the applicable to all other income not subject to these prefere
ntial tax rates. and capital gains received by a foreign corporation during each
taxable year from all sources within the Philippines shall not be
Going back to the domestic corporation, if the domestic corpora
tion has foreign sourced income, then the applicable rate will al treated as branch profits unless the same are effectively
so be 30%. connected with the conduct of its trade or business in the
What if the corporation which is domestic has real properties ab Philippines.
road which are capital assests?
Then you have Branch Profits Remittances Tax under Num
Then we apply the 6% subject to the regular rate. ber 5. These are the tax rates imposed when the branch office
would remit profits to the head office. It will be coursed through
Now other income such as the OBUs or the offshore banking the Central Bank. The tax rate there is 15%. Take note of the
units Number 4, as a rule they are exempted. base which is 15% of the total profits applied or earmarked for r
emmittance without any deductions for the tax component there
of.

(4) Offshore Banking Units. - The provisions of any law to the So kung mag remit ang branch office ng $100, ang mag dating
doon, $85 na lang because 15% has been deducted. The branc
contrary notwithstanding, income derived by offshore banking
h profit will be taxed. But the 15% is based on the total profits a
units authorized by the Bangko Sentral ng Pilipinas (BSP), from pplied, not the net profits.
foreign currency transactions with nonresidents, other offshore
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TAXATION 1

That used to be an issue before, kasi pag remit nila at pag dating Take note also that these rates, these are dividends from a
doon sa HongKong or abroad, it was then less 15% pa. But that domestic source of these corporations. The stockholders are
has been clarified by the Supreme Court. It should be based on citizen, resident aliens, non-resident aliens or a non-resident
the profits applied or earmarked for remittance. As clarified by alien in business and trade or a non-resident alien not engaged
the Supreme Court, it is the total profits which will be applied in business and trade, or a domestic corporation. They are the
without deduction for the tax component thereof. In other words, owners or stock holders who are the recipients of dividends
pag dating doon automatically set na, wala nang further coming from the domestic sources.
deductions.
If the dividends came from a domestic foreign corporation, take
Then we have Number 6, the Regional Area Or Head note that the taxability of all sources will be applicable only to
Quarters And Regional Operating Head Quarters Of Multi resident citizens and domestic corporation. Kasi taxable sila
National Companies. within and without the Philippines. So the dividends from a
foreign corporation received by a citizen are not taxable.
The Regional Head Quarter area is not taxable but the Regional
Operating Headquarters is taxable at 10% of their taxable The non-resident alien or the non-resident citizen. In so far as
income. the resident alien, not taxable. Because they are only taxable
within. Likewise all the aliens for that matter taxable na siya. The
Then you have tax on certain incomes received by a resident rate then is 30%, the regular tax rate. Pag foreign hindi taxable
foreign corporation: kasi foreign source man yan. Foreign corporations are also
sourced from income within and not outside the country. Take
• 7a on the interest from deposits and royalties note of how the tax dividends move correspondingly to the
• 7b on the income derived from foreign currency individual recipients.
deposits
• 7c on the capital gains from the sale of shares of stock Then you have this IMPROPERLY ACCUMULATED
not traded in the stock exchange. EARNINGS TAX UNDER SECTION 29.
• 7d on intercorporate dividends. in the case of a resident
feoreign coporaytion, the dividends receivfed from the The improperly accumulated earnings tax is a form of penalty
domestic is not taxable, excluded or exempted from tax or a surtax. These are imposed on corporations who would
tax. accumulate earnings beyond the reasonable tax rates and the
penalty is 10% of the improperly accumulated income. Kasi if
THEN SECTION 28 B THE NON-RESIDENT FOREIGN you are a corporation, you will be piling up and accumulating
CORPORATION earnings, kung mag pile up yan bigyan mo ng dividends yung
stockholders. Do not pile it up. Matatakot naman sila na i-
distribute kasi baka nga ma charge ng 10% penalty tax in the
1. The non-resident foreign corporation is taxed on gross
case of dividends. If such happens, we will just postpone. But
( meaning without deductions, similar to the non-
when they will distribute it later on, ganun pa naman din,
resident alien taxed at 15% tax on gross). Itong non-
matatamaan pa din sila ng 10%. So if they continue
resident foreign corporation taxed at 30% on gross.
accumulating earnings, then babalik sila ng surtax or 10% tax
2. Nonresident cinematographic film owner, lessor, or
on their improperly accumulated earnings. So that is precisely
distributor shall be subject to the 25% gross.
why you should divide or give rewards for profits to the stock
3. The resident owner or lessor of vessels chartered by
holders of corporations.
Philippine Nationals . A non-resident owner or lessor of
vessels shall be subject to tax of 4.5% of gross rentals
4. Non-resident owner or lessor of aircraft, machineries, Now in accumulating also earnings, the corporations do not
and other equipment shall be subject to tax of 7.5% of uphold the accumulated earnings. The burden that on these
the gross rental and fees. accumulated earnings are on the tax payer now. He has to prove
to the BIR that there is a need or a reasonable business and on
why they need to accumulate the earnings of the declaration of
Then letter(B) intercorporate dividends. Have a matrix of these
dividends as when they would contemplate expansion- they
dividends kasi mahaba ang provision. It will be easier if may
want to buy new equipment and machineries. Instead of
matrix.
borrowing money, they resort to capital sourcing as funds or
capital to expand. Therefore, the accumulation is justified.
Taken from previous TSN:
Once justified, the BIR will withdraw from assessing you the 10%
tax. Again, the burden of proving otherwise is with the tax payer.
The term reasonable means of business depends upon the tax
payer to justify the reasonably anticipated needs of the
business.
SECTION 30 YOU HAVE THE EXEMPTIONS FROM TAX ON

CORPORATIONS
SEC. 30. Exemptions from Tax on Corporations. - The
following organizations shall not be taxed under this Title in
respect to income received by them as such:

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TAXATION 1

(A) Labor, agricultural or horticultural organization not organized If it has activities conducted for profit, regardless of the
principally for profit;; disposition means that even if the income are flowed back to the
exempted corporation, it will still be taxable.
(B) Mutual savings bank not having a capital stock represented
by shares, and cooperative bank without capital stock organized Case Discussion by Dean
and operated for mutual purposes and without profit;;
YMCA vs. CIR
(C) A beneficiary society, order or association, operating for the
exclusive benefit of the members such as a fraternal FACTS: In 1980, YMCA earned an income of 676,829.80 from
organization operating under the lodge system, or mutual aid leasing out a portion of its premises to small shop owners, like
association or a nonstock corporation organized by employees restaurants and canteen operators and 44,259 from parking fees
providing for the payment of life, sickness, accident, or other collected from non-members. On July 2, 1984, the CIR issued
benefits exclusively to the members of such society, order, or an assessment to YMCA for deficiency taxes which included the
association, or nonstock corporation or their dependents;; income from lease of YMCA’s real property. YMCA formally
protested the assessment but the CIR denied the claims of
(D) Cemetery company owned and operated exclusively for the YMCA. On appeal, the CTA ruled in favor of YMCA and
benefit of its members;; excluded income from lease to small shop owners and parking
fees. However, the CA reversed the CTA but affirmed the CTA
(E) Nonstock corporation or association organized and upon motion for reconsideration.
operated exclusively for religious, charitable, scientific, athletic,
or cultural purposes, or for the rehabilitation of veterans, no part ISSUE: Whether the rental income of YMCA is taxable
of its net income or asset shall belong to or inure to the benefit
of any member, organizer, officer or any specific person;; RULING: Yes. The exemption claimed by YMCA is expressly
disallowed by the very wording of then Section 27 of the NIRC
(F) Business league chamber of commerce, or board of trade, which mandates that the income of exempt organizations (such
not organized for profit and no part of the net income of which as the YMCA) from any of their properties, real or personal, be
inures to the benefit of any private stock-holder, or individual;; subject to the tax imposed by the same Code. While the income
received by the organizations enumerated in Section 26 of the
(G) Civic league or organization not organized for profit but NIRC is, as a rule, exempted from the payment of tax in respect
operated exclusively for the promotion of social welfare;; to income received by them as such, the exemption does not
apply to income derived from any of their properties, real or
(H) A nonstock and nonprofit educational institution;; personal or from any of their activities conducted for profit,
regardless of the disposition made of such income.
(I) Government educational institution;;
In YMCA, it was argued that it was a charitable educational
(J) Farmers' or other mutual typhoon or fire insurance company, institution. But in this case, Supreme Court said that while it is
mutual ditch or irrigation company, mutual or cooperative an exempted institution for tax purposes it rented some of its
telephone company, or like organization of a purely local spaces for lessees. It had a parking lot for its members but it
character, the income of which consists solely of assessments, allowed non-members to park provided that they pay parking
dues, and fees collected from members for the sole purpose of fees. So income was earned from the parking fees collected
meeting its expenses;; and from non-members and rents from the rents of its spaces in the
building.
(K) Farmers', fruit growers', or like association organized and
operated as a sales agent for the purpose of marketing the All these income were used for the objective of YMCA. Now they
products of its members and turning back to them the proceeds claim exemption. SC ruled that they cannot claim exemption
of sales, less the necessary selling expenses on the basis of the even if the income was flowed back to its purpose or used for
quantity of produce finished by them;; their non-profit objective because of the last paragraph of
Section 30. Income of whatever kind. Kahit ano pang income
Notwithstanding the provisions in the preceding yan whatever kind or character from any of the properties.
paragraphs, the income of whatever kind and character of
the foregoing organizations from any of their properties, For example: a building doon nila nilagay ang office and other
real or personal, or from any of their activities conducted tax exempt activities and ngayon binenta nila yung kainilang
for profit regardless of the disposition made of such building or lot, and construct a new one.
income, shall be subject to tax imposed under this Code.

These are the corporations exempted from the earnings tax.
What is important here is the last paragraph. Is the sale of the building and the lot exempted?
In other words, the corporations will be exempted when what Probably not . Precisely based on the provision of the last
has been earned was in pursuance of the objective and purpose paragraph on income of whatever kind and character of the
of the exempt corporation. But if these exempt corporation has foregoing organizations from any of their properties. Even if the
other income of whatever kind and character of the foregoing proceeds of that sale will be used to buy another property which
organizations from any of their properties, real or personal, then will be used for the objective of the institution, it will still be not
that is taxable. granted with exemption. The sale will be subject to income tax.
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Likewise, if they engage in activities which they would profit even income in latter, then that income is taxed as part of the
if the proceeds thereof are used back to their tax exempt individual partner’ income.
purpose, it will still be subject to tax. As to business partnership, being taxable enities are
taxed like corporations.
So you have a list here of the exempted institutions from A-K.
The tax treatment of these institutions should be harmonized As to capital gains for the sale of shares of stocks that
with the provisions of the Constitution on the non-stock non- are no traded are 5 or 10%. The tax treatment here is that
profit organizations. (Article XVI, Section 4(3)) the first 100k is taxed at 5% while the excess thereof is
taxed at 10%. While capital gains on sale of real property,
Supposedly, that should not be there (referring to the NIRC it pertains to property considered as capital asset. These
provision) because for as long as non-stock nonprofit income is are real properties of an individual citizen etc that are not
used for its purposes, it yields to exemption. To tax that income used for business. These includes exchange or other
of the non-stock non-profit educational institution or non-tuition dispositions, such as foreclosure of mortgage. After the
income used for it tuition purposes, will defeat the Constitutional expiration of the redemption period, the highest bidder
provision. You would not encroach on what has been thereof shall pay a capital gains tax.
established by the Constitution by virtue of the legislative
enactment. You can not reduce the extent of the tax exemption. If a GOCC or any of its political subdivision would
purchase a property, then the option would belong to the
seller whether the tax rate would be the schedular tax rate
or the 6%. If it is in 6% capital gains tax, you have there a
tax base which is the gross selling price or the fair market
August 25,2016
value as determined by the Commissioner or the Provincial
Weng Resurreccion
or City Assessor whichever is higher. But if the seller
choose the schedular rate then the tax base therein is the
Those workers which are covered under the minimum wage law gain from the sale. Take note also the requirement for the
or what we call minimum wage earners, their compensation applicatio of the exemption if you would sell a house and
income are not taxable.They cover both the government and lot and you decide to rebuild another using the proceeds,
private and it includes the ovetime pay, night shift differential, then you can apply for he exemption.
hazard pay received by these minimum wage earners. If the
compensation income received is over and above the minimum In case of corporations, we have the NCIT which
wage, it is no longer covered by the exemption. The tax applies to domestic as well as resident foreign corporations
treatment is not the difference, i.e, the minimum wage is 300 and including all other corporation subject to regular based tax.
he is given 350, ang itax nyo lang is the 50 differential. No. He So hhere in Section 27(E) and the applicable concession
would be taxed entirely. So,lets say the monthly min wage is is under 28(A)(2), is the treatment of the NCIT. So, the
8k, but you are receiving 10k, then the entire 10k is taxable. minmum corporate income tax of 2% of the gross income
is also imposed on corporations taxable under NCIT.
In the case of the husband and the wife, teh spouses
are given a separate income tax rate while on the case of In other words, if you are a corporation taxed a 30%,
par. B in case of interest, royalties, prizes and other then you will also be assessed the 2% MCIT, and you will
winnings, they have tax rate of 20% excpt on rayalties on pay whichever is higher. And if you are taxed at a special
books, musical and other literary compositions which is rate, then the MCIT does not apply such as international
taxed at 10%. carriers which is a resident foreign corporation. Ordinarily,
resident foreign corporations are taxed at 30% but if it is an
Prizes are taxed at 20% those 10k or below which is taxed international carrier, then it is taxed at 2 1/2% of their Gross
based on the schedular rate under 24A. So, the prizes under 10k Philippine Billing. The computation now is quarterly but let
should be added to the regular income. Winnings, it shall also as assume it is still in the yearly scheme. Lets say you have
be subject to 20% final withholding tax except those PCSO and a corporation:
lotto winnings which are tax exempt.

NCIT of MCIT of 2% Excess
We also have ecpanded foreign currency deposit(EFCD)
30%
which is subject to 7 1/2 tax rate but what is taxed is the interest
2010 100,000 150,000 50, 000
income. While long term deposits are tax free which has a
2011 130,000 190,000 60,000
maturity of 5 years or more. If during the lifetime of the deposit,
the tax payer decided to pre-terminate, it becomes taxable. The 2012 200,000 180,000
rate will depend on the date of the pre termination. Total 110,000
Excess
In the case of cash or property dividends, take note Tax Due 200,000-110,0000=90,000
of the various types of dividends. What is taxable here
pertains to cash and property dividends. Dividends are
distribution of profits of corporations to theri stock holders. In 2010, pay the 150k but MCIT is only applicable if
Now, the scope of the taxation of dividends is 10%? In the the corporation is already more than 3 years in operation
th
case of citizens and resident alien. This 2 will cover also and then the MCIT be imposable beginning the 4 taxable
distribution of profits of partnerships except when it is year. The law also recognizes that you are only to pay the
engaged in a professional partnership engaged in the regular rate hence the excess which is the difference of the
practice of a profession;; When you are given a share of MCIT and NCIT. It’s purpose is the carry forward of the
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TAXATION 1

excess minmum tax which shall be carried forward and employees as defined herein) such as, but not limited to, the
credited against the normal income tax in the 3 succeeding following:
taxable year. The credit is applicable when the NCIT rate
is higher than the MCIT. In the effect, let’s say if the MCIT (1) Housing;;
is still higher then, it is not creditable.
*Revenue Regulation 12-2007(?)
(2) Expense account;;
Can the taxpayer ask for the suspenson of the effects
of the MCIT? (3) Vehicle of any kind;;

Yes. (4) Household personnel, such as maid, driver and others;;
We have No. 3. The Sec. Of Finance may to suspend
its imposition when the corp. Suffers losses on account of
prolonged labor dispute or on account of force majeure or (5) Interest on loan at less than market rate to the extent of
caused by legitimate business reverses. Hence, you are the difference between the market rate and actual rate
still taxable under the NCIT. This treatment also applies to granted;;
resident foreign corporations.
(6) Membership fees, dues and other expenses borne by the
For corporations, the inter corporate dividends are not employer for the employee in social and athletic clubs or other
taxable both from the domestic and resident foreign corp. similar organizations;;
But not in the case of non resident foreign corp. which
receives dividends from other corps., has a specified tax
(7) Expenses for foreign travel;;
rate. The rate depends on whether or not the corporation
is entitled to a tax sparring Credit. The rate is either 15 or
30% which shall be collected under the tax withholding (8) Holiday and vacation expenses;;
system..
(9) Educational assistance to the employee or his
It is subject to the conditon that the country in which dependents;; and
the non-resident foreign corporation is domiciled shall
allow a credit against the tax due to a non resident foreign
(10) Life or health insurance and other non-life insurance
corporation, taxes deemed to have been granted to them
premiums or similar amounts in excess of what the law allows.
by the Philippines equivalent to 20%.

The Improperly Accumulaed Earnings Tax is a (C) Fringe Benefits Not Taxable. - The following fringe
penalty tax or a surtax. This is imposed oly to corporations benefits are not taxable under this Section:
which accumulated earnings beyond the reasonable need
of the business or industry. WHile corps. Are allowed to (1) fringe benefits which are authorized and exempted from
accumulate profits they are however prohibted to tax under special laws;;
accumulate it beyond reasonable needs of business. It is
determined by BIR when the corps. File their tax return,
they are required to attach their financial statements. It is (2) Contributions of the employer for the benefit of the
taxed at 10% of the improperly accumulated earnings. employee to retirement, insurance and hospitalization benefit
There are however corps. Which are exempted under Sec. plans;;
29, the law mentions publicly held corporations meaning
those traded in the stock exchange, there are banks, (3) Benefits given to the rank and file employees, whether
financial corps, financial intermediaries and insurance granted under a collective bargaining agreement or not;; and
companies. You also have business partnerships,
professional partnerships, non-taxable joint ventures for (4) De minimis benefits as defined in the rules and regulations
construction of coal and geothermal facilities and energy to be promulgated by the Secretary of Finance, upon
constructions. recommendation of the Commissioner.

We also have a special treatment of fringe benefits
tax. The Secretary of Finance is hereby authorized to promulgate,
upon recommendation of the Commissioner, such rules and
regulations as are necessary to carry out efficiently and fairly
The fringe benefits are received by employees (EEs) to the provisions of this Section, taking into account the peculiar
be considered as rank and file EEs. It forms part of the nature and special need of the trade, business or profession
compensation of the EE. If you are a rank and file EE of the employer.
and you receive a fringe benefit, it comes in a different
forms.

Section 33 (b)Fringe Benefit defined. - For purposes of this
Section, the term 'fringe benefit' means any good, service or Except when they are for the convenience of the
other benefit furnished or granted in cash or in kind by an employer or they are in pursuit of the business of the
employer to an individual employee (except rank and file employer.
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Those not excluded will be added to their Effective January 1, 1998 - 66%
compensation. Effective January 1, 1999 - 67%
Effective January 1, 2000 - 68%
The other group of EEs who receive fringe benefits
are what we call supervisory and managerial EEs. While these The grossed-up monetary value of the fringe benefit
fringe benefits form part of their compensation as a general, this represents the whole amount of income realized by the
not however form part of their taxable compensation. These employee which includes the net amount of money or net
benefits will then be taxed to the employer. The employers will monetary value of property which has been received plus the
pay the tax for those benefits. amount of fringe benefit tax thereon otherwise due from the
employee but paid by the employer for and in behalf of his
What is the scope of this fringe benefit? employee, pursuant to the provisions of this Section.
Please be guided of Revenue Regulation 3-98
Revenue Regulations No. 3-98 - Fringe Benefit Tax Coverage — These Regulations shall cover only
those fringe benefits given or furnished to managerial or
supervisory employees and not to the rank and file.
May 21, 1998 January 1, 1998
The term, "RANK AND FILE EMPLOYEES" means
REVENUE REGULATIONS NO. 03-98 all employees who are holding neither managerial nor
supervisory position. The Labor Code of the Philippines, as
SUBJECT : Implementing Section 33 of the National amended, defines "managerial employee" as one who is vested
Internal Revenue Code, as Amended by Republic Act No. 8424 with powers or prerogatives to lay down and execute
Relative to the Special Treatment of Fringe Benefits management policies and/or to hire, transfer, suspend, lay-off,
TO : All Internal Revenue Officers and Others recall, discharge, assign or discipline employees. "Supervisory
Concerned employees" are those who, in the interest of the employer,
effectively recommend such managerial actions if the exercise
Pursuant to Section 244, in relation to Section 33 of of such authority is not merely routinary or clerical in nature but
the National Internal Revenue Code of 1997, these Regulations requires the use of independent judgment.
are hereby promulgated to govern the collection at source of the
tax on fringe benefits which have been furnished, granted or Moreover, these regulations do not cover those
paid by the employer beginning January 1, 1998. benefits properly forming part of compensation income subject
to withholding tax on compensation in accordance with Revenue
SEC. 2.33. SPECIAL TREATMENT OF FRINGE Regulations No. 2-98.
BENEFITS Fringe benefits which have been paid prior to January
1, 1998 shall not be covered by these Regulations.
(A) Imposition of Fringe Benefits Tax — A final
withholding tax is hereby imposed on the grossed-up monetary Determination of the Amount Subject to the
value of fringe benefit furnished, granted or paid by the employer Fringe Benefit Tax — In general, the computation of the fringe
to the employee, except rank and file employees as defined in benefits tax would entail (a) valuation of the benefit granted and
these Regulations, whether such employer is an individual, (b) determination of the proportion or percentage of the benefit
professional partnership or a corporation, regardless of whether which is subject to the fringe benefit tax. That the Tax Code
the corporation is taxable or not, or the government and its allows for the cases where only a portion (i.e. less than 100 per
instrumentalities except when: (1) the fringe benefit is required cent) of the fringe benefit is subject to the fringe benefit tax is
by the nature of or necessary to the trade, business or clearly stated in Section 33 (a) of R.A. 8424 which stipulates that
profession of the employer;; or (2) when the fringe benefit is for fringe benefits which are "required by the nature of, or necessary
the convenience or advantage of the employer. The fringe to the trade, business or profession of the employer, or when the
benefit tax shall be imposed at the following rates: fringe benefit is for the convenience or advantage of the
employer" are not subject to the fringe benefit tax. Thus, in cases
Effective January 1, 1998 - 34% where the fringe benefits entail joint benefits to the employer and
Effective January 1, 1999 - 33% employee, the portion which shall be subject to the fringe
Effective January 1, 2000 - 32% benefits tax and the guidelines for the valuation of fringe benefits
are defined under these rules and regulations.

The tax imposed under Sec. 33 of the Code shall be Unless otherwise provided in these regulations, the
treated as a final income tax on the employee which shall be valuation of fringe benefits shall be as follows:
withheld and paid by the employer on a calendar quarterly basis
as provided under Sec. 57 (A) (Withholding of Final Tax on (1) If the fringe benefit is granted in money, or is
certain Incomes) and Sec. 58 A (Quarterly Returns and directly paid for by the employer, then the value is the amount
Payments of Taxes Withheld) of the Code. granted or paid for.

(2) If the fringe benefit is granted or furnished by
The grossed-up monetary value of the fringe benefit the employer in property other than money and ownership is
shall be determined by dividing the monetary value of the fringe transferred to the employee, then the value of the fringe benefit
benefit by the following percentages and in accordance with the shall be equal to the fair market value of the property as
following schedule: determined in accordance with Sec. 6 (E) of the Code (Authority
of the Commissioner to Prescribe Real Property Values).
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(10) Life or health insurance and other non-life
(3) If the fringe benefit is granted or furnished by insurance premiums or similar amounts in excess of what the
the employer in property other than money but ownership is not law allows.
transferred to the employee, the value of the fringe benefit is
equal to the depreciation value of the property. For this purpose, the guidelines for valuation of
specific types of fringe benefits and the determination of the
Taxation of fringe benefit received by a non- monetary value of the fringe benefits are give below. The taxable
resident alien individual who is not engaged in trade or value shall be the grossed-up monetary value of the fringe
business in the Philippines — A fringe benefit tax of twenty- benefit.
five percent (25%) shall be imposed on the grossed-up
monetary value of the fringe benefit. The said tax base shall be (1) Housing privilege —
computed by dividing the monetary value of the fringe benefit by
seventy-five per cent (75%). (a) If the employer leases a residential property
for the use of his employee and the said property is the usual
Taxation of fringe benefit received by place of residence of the employee, the value of the benefit shall
(1) an alien individual employed by regional or area be the amount of rental paid thereon by the employer, as
headquarters of a multinational company or by regional evidenced by the lease contract. The monetary value of the
operating headquarters of a multinational company;; fringe benefit shall be fifty per cent (50%) of the value of the
benefit.
(2) an alien individual employed by an offshore
banking unit of a foreign bank established in the Philippines;; (b) If the employer owns a residential property and
the same is assigned for the use of his employee as his usual
(3) an alien individual employed by a foreign service place of residence, the annual value of the benefit shall be five
contractor or by a foreign service subcontractor engaged in per cent (5%) of the market value of the land and improvement,
petroleum operations in the Philippines;; and as declared in the Real Property Tax Declaration Form, or zonal
value as determined by the Commissioner pursuant to Section
(4) any of their Filipino individual employees who are 6(E) of the Code (Authority of the Commissioner to Prescribe
employed and occupying the same position as those occupied Real Property Values), whichever is higher. The monetary value
or held by the alien employees. — A fringe benefit tax of fifteen of the fringe benefit shall be fifty per cent (50%) of the value of
per cent (15%) shall be imposed on the grossed-up monetary the benefit. cda
value of the fringe benefit. The said tax base shall be computed
by dividing the monetary value of the fringe benefit by eighty-five The monetary value of the housing fringe benefit is
per cent (85%). equivalent to the following:

Taxation of fringe benefit received by employees MV = [5%(FMV or ZONAL VALUE] X 50%
in special economic zones — Fringe benefits received by WHERE:
employees in special economic zones, including Clark Special MV = MONETARY VALUE
Economic Zone and Subic Special Economic and Free Trade FMV = FAIR MARKET VALUE
Zone, are also covered by these regulations and subject to the
normal rate of fringe benefit tax or the special rates of 25% or (c) If the employer purchases a residential
15% as provided above. property on installment basis and allows his employee to use the
same as his usual place of residence, the annual value of the
(B) Definition of Fringe Benefit — In general, benefit shall be five per cent (5%) of the acquisition cost,
except as otherwise provided under these regulations, for exclusive of interest. The monetary value of fringe benefit shall
purposes of this Section, the term "FRINGE BENEFIT" means be fifty per cent (50%) of the value of the benefit.
any good, service, or other benefit furnished or granted by an
employer in cash or in kind, in addition to basic salaries, to an (d) If the employer purchases a residential
individual employee (except rank and file employee as defined property and transfers ownership thereof in the name of the
in these regulations) such as, but not limited to the following: employee, the value of the benefit shall be the employer's
acquisition cost or zonal value as determined by the
(1) Housing;; Commissioner pursuant to Section 6(E) of the Code (Authority
(2) Expense account;; of the Commissioner to Prescribe Real Property Values),
(3) Vehicle of any kind;; whichever is higher. The monetary value of the fringe benefit
(4) Household personnel, such as maid, driver shall be the entire value of the benefit.
and others;;
(5) Interest on loan at less than market rate to the (e) If the employer purchases a residential
extent of the difference between the market rate and actual rate property and transfers ownership thereof to his employee for the
granted;; latter's residential use, at a price less than the employer's
(6) Membership fees, dues and other expenses acquisition cost, the value of the benefit shall be the difference
borne by the employer for the employee in social and athletic between the fair market value, as declared in the Real Property
clubs or other similar organizations;; Tax Declaration Form, or zonal value as determined by the
(7) Expenses for foreign travel;; Commissioner pursuant to Sec. 6(E) of the Code (Authority of
(8) Holiday and vacation expenses;; the Commissioner to Prescribe Real Property Values),
(9) Educational assistance to the employee or his whichever is higher, and the cost to the employee. The monetary
dependents;; and value of the fringe benefit shall be the entire value of the benefit.
32
3 Manresa 2016-2017
TAXATION 1

the employee partly for his personal purpose and partly for the
(f) Housing privilege of military officials of the benefit of his employer, unless the same was subjected to a
Armed Forces of the Philippines (AFP) consisting of officials of withholding tax as compensation income under Revenue
the Philippine Army, Philippine Navy and Philippine Air Force Regulations No. 2-98.
shall not be treated as taxable fringe benefit in accordance with
the existing doctrine that the State shall provide its soldiers with (c) If the employer purchases the car on
necessary quarters which are within or accessible from the installment basis, the ownership of which is placed in the name
military camp so that they can be readily on call to meet the of the employee, the value of the benefit shall be the acquisition
exigencies of their military service. cost exclusive of interest, divided by five (5) years. The
monetary value of the fringe benefit shall be the entire value of
(g) A housing unit which is situated inside or the benefit regardless of whether the motor vehicle is used by
adjacent to the premises of a business or factory shall not be the employee partly for his personal purpose and partly for the
considered as a taxable fringe benefit. A housing unit is benefit of his employer.
considered adjacent to the premises of the business if it is
located within the maximum of fifty (50) meters from the (d) If the employer shoulders a portion of the
perimeter of the business premises. amount of the purchase price of a motor vehicle the ownership
of which is placed in the name of the employee, the value of the
(h) Temporary housing for an employee who stays benefit shall be the amount shouldered by the employer. The
in a housing unit for three (3) months or less shall not be monetary value of the fringe benefit shall be the entire value of
considered a taxable fringe benefit. the benefit regardless of whether the motor vehicle is used by
the employee partly for his personal purpose and partly for the
(2) Expense account — benefit of his employer.

(a) In general, expenses incurred by the employee (e) If the employer owns and maintains a fleet of
but which are paid by his employer shall be treated as taxable motor vehicles for the use of the business and the employees,
fringe benefits, except when the expenditures are duly receipted the value of the benefit shall be the acquisition cost of all the
for and in the name of the employer and the expenditures do not motor vehicles not normally used for sales, freight, delivery
partake the nature of a personal expense attributable to the service and other non-personal used divided by five (5) years.
employee. The monetary value of the fringe benefit shall be fifty per cent
(50%) of the value of the benefit.
(b) Expenses paid for by the employee but
reimbursed by his employer shall be treated as taxable benefits The monetary value of the motor vehicle fringe benefit
except only when the expenditures are duly receipted for and in is equivalent to the following:
the name of the employer and the expenditures do not partake
the nature of a personal expense attributable to the said MV = [(A)/5] X 50%
employee. where:
(c) Personal expenses of the employee (like MV = Monetary value
purchases of groceries for the personal consumption of the A = acquisition cost
employee and his family members) paid for or reimbursed by the
employer to the employee shall be treated as taxable fringe (f) If the employer leases and maintains a fleet of
benefits of the employee whether or not the same are duly motor vehicles for the use of the business and the employees,
receipted for in the name of the employer. the value of the benefit shall be the amount of rental payments
for motor vehicles not normally used for sales, freight, delivery,
(d) Representation and transportation allowances service and other non-personal use. The monetary value of the
which are fixed in amounts and are regular received by the fringe benefit shall be fifty per cent (50%) of the value of the
employees as part of their monthly compensation income shall benefit.
not be treated as taxable fringe benefits but the same shall be
considered as taxable compensation income subject to the tax (g) The use of aircraft (including helicopters)
imposed under Sec. 24 of the Code. owned and maintained by the employer shall be treated as
business use and not be subject to the fringe benefits tax.
(3) Motor vehicle of any kind —
(h) The use of yacht whether owned and
(a) If the employer purchases the motor vehicle maintained or leased by the employer shall be treated as taxable
in the name of the employee, the value of the benefit is the fringe benefit. The value of the benefit shall be measured based
acquisition cost thereof. The monetary value of the fringe benefit on the depreciation of a yacht at an estimated useful life of 20
shall be the entire value of the benefit, regardless of whether the years.
motor vehicle is used by the employee partly for his personal
purpose and partly for the benefit of his employer. (4) Household expenses — Expenses of the
employee which are borne by the employer for household
(b) If the employer provides the employee with personnel, such as salaries of household help, personal driver
cash for the purchase of a motor vehicle, the ownership of which of the employee, or other similar personal expenses (like
is placed in the name of the employee, the value of the benefits payment for homeowners association dues, garbage dues, etc.)
shall be the amount of cash received by the employee. The shall be treated as taxable fringe benefits.
monetary value of the fringe benefit shall be the entire value of
the benefit regardless of whether the motor vehicle is used by (5) Interest on loan at less than market rate
33
3 Manresa 2016-2017
TAXATION 1

(a) The cost of the educational assistance to the
(a) If the employer lends money to his employee employee which are borne by the employer shall, in general, be
free of interest or at a rate lower than twelve per cent (12%), treated as taxable fringe benefit. However, a scholarship grant
such interest foregone by the employer or the difference of the to the employee by the employer shall not be treated as taxable
interest assumed by the employee and the rate of twelve per fringe benefit if the education or study involved is directly
cent (12%) shall be treated as a taxable fringe benefit. connected with the employer's trade, business or profession,
and there is a written contract between them that the employee
(b) The benchmark interest rate of twelve per cent is under obligation to remain in the employ of the employer for
(12%) shall remain in effect until revised by a subsequent period of time that they have mutually agreed upon. In this case,
regulation. the expenditure shall be treated as incurred for the convenience
and furtherance of the employer's trade or business.
(c) This regulation shall apply to installment
payments or loans with interest rate lower than twelve per cent (b) The cost of educational assistance extended
(12%) starting January 1, 1998. by an employer to the dependents of an employee shall be
treated as taxable fringe benefits of the employee unless the
(6) Membership fees, dues, and other assistance was provided through a competitive scheme under
expenses borne by the employer for his employee, in social the scholarship program of the company.
and athletic clubs or other similar organizations. — These
expenditures shall be treated as taxable fringe benefits of the (10) Life or health insurance and other non-life
employee in full. insurance premiums or similar amounts in excess of what
the law allows — The cost of life or health insurance and other
(7) Expenses for foreign travel — non-life insurance premiums borne by the employer for his
employee shall be treated as taxable fringe benefit, except the
(a) Reasonable business expenses which are following: (a) contributions of the employer for the benefit of the
paid for by the employer for the foreign travel of his employee employee, pursuant to the provisions of existing law, such as
for the purpose of attending business meetings or conventions under the Social Security System (SSS), (R.A. No. 8282, as
shall not be treated as taxable fringe benefits. In this instance, amended) or under the Government Service Insurance System
inland travel expenses (such as expenses for food, beverages (GSIS) (R.A. No. 8291), or similar contributions arising from the
and local transportation) except lodging cost in a hotel (or similar provisions of any other existing law;; and (b) the cost of premiums
establishments) amounting to an average of US$300.00 or less borne by the employer for the group insurance of his employees.
per day, shall not be subject to a fringe benefit tax. The
expenses should be supported by documents proving the actual
occurrences of the meetings or conventions. (C) Fringe Benefits Not Subject to Fringe
The cost of economy and business class airplane Benefits Tax — In general, the fringe benefits tax shall not be
ticket shall not be subject to a fringe benefit tax. However, 30 imposed on the following fringe benefits:
percent of the cost of first class airplane ticket shall be subject
to a fringe benefit tax. (1) Fringe benefits which are authorized and
exempted from income tax under the Code or under any special
(b) In the absence of documentary evidence law;;
showing that the employee's travel abroad was in connection (2) Contributions of the employer for the benefit
with business meetings or conventions, the entire cost of the of the employee to retirement, insurance and hospitalization
ticket, including cost of hotel accommodations and other benefit plans;;
expenses incident thereto shouldered by the employer, shall be (3) Benefits given to the rank and file, whether
treated as taxable fringe benefits. The business meetings shall granted under a collective bargaining agreement or not;;
be evidenced by official communications from business (4) De minimis benefits as defined in these
associates abroad indicating the purpose of the meetings. Regulations;;
Business conventions shall be evidenced by official (5) If the grant of fringe benefits to the employee
invitations/communications from the host organization or entity is required by the nature of, or necessary to the trade, business
abroad. Otherwise, the entire cost thereof shouldered by the or profession of the employer;; or
employer shall be treated as taxable fringe benefits of the (6) If the grant of the fringe benefit is for the
employee. convenience of the employer.

(c) Travelling expenses which are paid by the The exemption of any fringe benefit from the fringe
employer for the travel of the family members of the employee benefit tax imposed under this Section shall not be interpreted
shall be treated as taxable fringe benefits of the employee. to mean exemption from any other income tax imposed under
the Code except if the same is likewise expressly exempt from
any other income tax imposed under the Code or under any
(8) Holiday and vacation expenses — Holiday other existing law. Thus, if the fringe benefit is exempted from
and vacation expenses of the employee borne by his employer the fringe benefits tax, the same may, however, still form part of
shall be treated as taxable fringe benefits. the employee's gross compensation income which is subject to
income tax, hence, likewise subject to a withholding tax on
(9) Educational assistance to the employee or compensation income payment.
his dependents —
The term "DE MINIMIS" benefits which are exempt
from the fringe benefit tax shall, in general, be limited to facilities
34
3 Manresa 2016-2017
TAXATION 1

or privileges furnished or offered by an employer to his Monthly rental for the residential house P66,000.00
employees that are of relatively small value and are offered or Grossed-up monetary benefit granted
furnished by the employer merely as a means of promoting the (P66,000.00 divided by 66% factor for
health, goodwill, contentment, or efficiency of his employees calendar year 1998 times 50% taxable
such as the following: portion) P50,000.00
(1) Monetized unused vacation leave credits of ———––––
employees not exceeding ten (10) days during the year;; Fringe benefit tax due thereon (34%) P17,000.00
(2) Medical cash allowance to dependents of =========
employees not exceeding P750 per semester or P125 per
month;; ABC Corporation shall take up in its books of
(3) Rice subsidy of P350 per month granted by accounts the P66,000.00 fringe benefit furnished to Mr. Dela
an employer to his employees;; Cruz, under account title "Fringe Benefit Expense" and the
(4) Uniforms given to employees by the employer;; amount of 17,000.00 under the account title "Fringe Benefit Tax
(5) Medical benefits given to the employees by Expense". The aforesaid amounts shall be fully allowed as
the employer;; deductions from the gross income of ABC Corporation and shall
(6) Laundry allowance of P150 per month;; be taken up in the said employer's books of accounts as follows:
(7) Employee achievement awards, e.g. for length Debit: Fringe Benefit Expense P66,000
of service or safety achievement, which must be in the form of a Debit: Fringe Benefit Tax Expense P17,000
tangible personal property other than cash or gift certificate, with Credit: Cash P83,000
an annual monetary value not exceeding one-half (½) month of
the basic salary of the employee receiving the award under an
established written plan which does not discriminate in favor of To record fringe benefit expense and fringe benefit
highly paid employees;; tax paid on rental of the residential property furnished to Mr. Dela
(8) Christmas and major anniversary celebrations Cruz for his residential use. (Note: If the fringe benefit expense
for employees and their guests;; of P66,000.00 has already accrued but not yet paid, use the
(9) Company picnics and sports tournaments in account title "fringe benefit payable". If the fringe benefit tax has
the Philippines and are participated exclusively by employees;; already accrued but not yet paid, use the account title "fringe
and benefit tax payable").
(10) Flowers, fruits, books or similar items given to
employees under special circumstances, e.g. on account of (2) XYZ Corporation owns a condominium unit.
illness, marriage, birth of a baby, etc During the year 1998, the said corporation furnished and
granted the said property for the residential use of its Assistant
(D) Tax Accounting for the Fringe Benefit Vice-President. The fair market value of the said property as
Furnished to the Employee and the Fringe Benefit Tax Due determined by the Commissioner pursuant to Section 6(E) of the
Thereon. — As a general rule, the amount of taxable fringe Code amounts P10,000,000.00 while its fair market value as
benefit and the fringe benefits tax shall constitute allowable shown in its current Real Property Tax Declaration amounts to
deductions from gross income of the employer. However, if the P8,000,000.00. In this case, the higher fair market value of
basis for computation of the fringe benefits tax is the P10,000,000.00 as determined by the Commissioner shall be
depreciation value, the zonal value as determined by the used in computing the monetary of the fringe benefit so
Commissioner pursuant to Section 6(E) of the Code or the fair furnished or granted to said employee and the fringe benefit tax
market value as determined in the current real property tax due thereon shall be computed as follows:
declaration of a certain property, only the actual fringe benefits
tax paid shall constitute a deductible expense for the employer. Monthly rental value of the property
The value of the fringe benefit shall not be deductible and shall (P10,000,000 times 5% thereof times 50%
be presumed to have been tacked on or actually claimed as divided by 12 months) P20,833.33
depreciation expense by the employer. Grossed-up monetary value thereof as fringe
benefit (P20,833.33 divided by 66% factor for
Provided, however, that if the aforesaid zonal value calendar year 1998) P31,565.66
or fair market value of the said property is greater than its cost Fringe Benefit tax due thereon
subject to depreciation, the excess amount shall be allowed as (34%) P10,732.32
a deduction from the employer's gross income as fringe benefit =========
expense.
In general, under this illustration, the XYZ Corporation
shall not further claim deduction for allowing its Assistant Vice-
Illustrations on fringe benefit furnished or granted by President the use of its residential property since the cost for the
the employer to an employee (other than a rank-and-file use thereof has already been recovered as deduction from its
employee) gross income under "Depreciation Expense". However, since
(1) During the year 1998, ABC Corporation paid the fringe benefit tax in the amount of P10,732.32, assumed and
for the monthly rental of a residential house of its branch paid by XYZ corporation has not as yet been recovered by way
manager (Mr. Dela Cruz) amounting to P66,000.00. of deduction from gross income, the same shall be allowed as a
deduction from its gross income. XYZ Corporation shall take up
In this case, the monthly taxable grossed-up the foregoing in its books of accounts, as follows:
monetary value of the said fringe benefit furnished or granted to Debit: Fringe Benefit Tax Expense P10,732.32
its branch manager (Mr. Dela Cruz) shall be P50,000.00, Credit: Cash/Fringe Benefit Tax
computed as follows: Payable P10,732.32
35
3 Manresa 2016-2017
TAXATION 1

To record fringe benefit tax expense for the = 147058.82
residential property furnished to employees.
Fringe Benefit= 147058.82 x 32%
However, if the cost of the aforesaid condominium
unit subject to depreciation allowance (example: its acquisition
cost is only P7,000,000.00) is lesser that its fair market value as = 4595.59(?)
determined by the Commissioner (i.e. P10,000,000.00), the
excess amount (i.e. P3,000,000.00) shall be amortized • Those fringe benefits for the convenience of the
throughout the remaining estimated useful life of the residential employer which are excluded from tax ad those
property used in computing the said employer's depreciation benefits which are necessary for the business of the
expense and allowed as a deduction from the said employer's employer.
gross income as fringe benefit expense. Thus, if the remaining
estimated useful life thereof during the year 1998 is fifteen (15)

years, its monthly amortization shall be computed as follows:

th
Monthly amortization (P3,000,000.00 divided by • Take note also of 13 month pay, the guaranteed or
15 years divided by 12 months) P16,666.67 exempted amount is up to 82,000.00. If the EE has a
th
200,000.00 13 mo. Pay then deduct the 82,000.00
first since that is exempted. The excess is taxable.
In this case, XYZ Corporation shall take up the
foregoing in its books of accounts as follows:
Debit: Fringe benefit expense P16,666.67
Debit: Fringe benefit tax P10,732.32
Credit: Income constructively
realized P16,666.67
Credit: Cash/Fringe benefit tax --------------------------------------END---------------------------------------
payable P10,732.32

To record fringe benefit and fringe benefit tax
expenses and income constructively realized from the use of
company-owned residential property furnished to employees.

Under Section 33, the term 'fringe benefit'
means any good, service or other benefit furnished or
granted in cash or in kind by an employer to an
individual employee except rank and file employees.
Prior to 1998, there was no such provision but there are
schemes which are off books.

It is based on the
Fringe benefit= gross-up monetary value x 32%
The tax base now is not the actual value.
Gross-up monetary value = actual value divided by 68
EXAMPLE:
Actual Value = 10,000,000 vehicle
Gross-up monetary value = 10,000,000
68%
36
3 Manresa 2016-2017

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TAXATION

Our Income Tax System has a withholding of taxes feature

Capital gain – gain on a capital asset. A. Citizens

ON OTHER DISPOSITION OF REAL PROPERTY

SECTION 30 YOU HAVE THE EXEMPTIONS FROM TAX ON

Fringe benefit= gross-up monetary value x 32%

The tax base now is not the actual value.

Gross-up monetary value = actual value divided by 68

Actual Value = 10,000,000 vehicle

Gross-up monetary value = 10,000,000

Potrebbero piacerti anche

2016 Tax1 TSN Dean Quibod 2nd Exam

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

2016 Tax1 TSN Dean Quibod 2nd Exam

Caricato da

Copyright:

Formati disponibili

TAXATION

Our Income Tax System has a withholding of taxes feature

Capital gain – gain on a capital asset. A. Citizens

ON OTHER DISPOSITION OF REAL PROPERTY

SECTION 30 YOU HAVE THE EXEMPTIONS FROM TAX ON

Fringe benefit= gross-­up monetary value x 32%

The tax base now is not the actual value.

Gross-­up monetary value = actual value divided by 68

Actual Value = 10,000,000 vehicle

Gross-­up monetary value = 10,000,000

Potrebbero piacerti anche

Fringe benefit= gross-up monetary value x 32%

Gross-up monetary value = actual value divided by 68

Gross-up monetary value = 10,000,000