Exempt Taxpayers sale is not of US source hence taxable.
CIR v The law and the facts of the case are so
Exempt Individuals
Minimum Wage Earners (RA 9504)
- Rule: they shall be exempt from payment of income
tax on their taxable income
- Limit: however, if he receives other benefits in
excess of the allowable statutory amount of P30,000,
then he shall be taxable on the exceeds benefits as
well as his salaries, wages, and allowances, just like an
employee receiving compensation income beyond the
statutory minimum wage. Compensation income
including overtime pay, holiday pay, night shift
differential pay, and hazard pay, earned by MINIMUM
WAGE EARNERS (MWE) who has no other returnable
income are NOT taxable and not subject to withholding
tax on wages [RA 9504]
- Provided, however, that an employee shall not enjoy
the privilege of being a MWE and, therefore, his/her
entire earning are not exempt from income tax and,
consequently, from withholding tax if he receives/earns
additional compensation such as commissions,
honoraria, fringe benefits, benefits in excess of the
allowable statutory amount of P30,000, taxable
allowance, and other taxable income other than the
statutory minimum wage (SMW), holiday pay, overtime
pay, hazard pay and night shift differential pay.
- MWEs receiving other income, such as income from the
conduct of trade, business, or practice of profession,
except income subject to final tax, in addition to
compensation income are not exempted from income
tax on their income earned during the taxable year.
- This rule, notwithstanding, the SMW, Holiday Pay,
overtime pay, night differential pay and hazard pay
shall still exempt from withholding tax.
Senior Citizens (Sec 4, RA 9257; RA 9994)
- Who covered: any resident citizen
(a) At least 60 years old, and
(b) Who are considered minimum wage earners under
RA 9504. (Sec. 4 (b) RA 7432, as amended by RA
9994) and/or the aggregate amount of gross
income earned by the senior citizen during the
taxable year does not exceed the amount of his
personal exemptions (BPE and APE).
- RR 7-2010 implements tax privileges and provisions
of RA 9994. Qualified Seniors deriving returnable
income durint taxable year, whether from
compensation orotherwise, are required to file their ITR
and pay the tax as they file the return. Hoever, if the
returnable income of a Senior is in the nature of
compensation income but he qualifies as a minimum
wage earner under RA 9504, he shall be exempt from
Income Tax on the said compensation income subject
to the rules applicable to minimum wage earners.
- RR 8-2010 excluding the special discounts on
electric and water consumption of senior citizens from
exemption from Value Added Tax.
Under Tax Treaty
- taxation of compensation income of Philippine
nationals and alien individuals employed by foreign
governments/embassies/diplomatic missions and
international organizations situated in the Philippines
Reagan Philippines is independent and sovereign, its
v CIR authority may be exercised over its entire
domain. There is no portion thereof that is
beyond its power. Within its limits, its
decrees are supreme, its commands
paramount. Its laws govern therein, and
everyone to whom it applies must submit to
its terms. That is the extent of its
jurisdiction, both territorial and personal. On
the other hand, there is nothing in the
Military Bases Agreement that lends support
to Reagans assertion. The Base has not
become foreign soil or territory. This
countrys jurisdictional rights therein,
certainly not excluding the power to tax,
have been preserved, the Philippines merely
consents that the US exercise jurisdiction in
certain cases this is just a matter of
comity, courtesy and expediency. It is
likewise noted that he indeed is employed
by the USAF and his income is derived from
US source but the income derived from the
Robert clear that there is no room left for doubt the
son validity of the brothers defense.
In order to avail oneself of the tax exemption
under the RP-US Military Bases Agreement:
he must be a national of the United States
employed in connection with the
construction, maintenance, operation or
defense, of the bases, residing in the
Philippines by reason of such employment,
and the income derived is from the U.S.
Government (Art. XII par. 2 of PI-US Military
Bases Agreement of 1947). Said
circumstances are all present in the case at
bar.
[Robertson brothers were American Citizens
born in the PH. They stayed here until
repatriated by the US.]
Exempt Corporations
Section 27 (c) NIRC
(C) Government-owned or -Controlled Corporations,
Agencies or Instrumentalities. - The provisions of
existing special or general laws to the contrary
notwithstanding, all corporations, agencies, or
instrumentalities owned or controlled by the Government,
except the Government Service Insurance System (GSIS),
the Social Security System (SSS), the Philippine Health
Insurance Corporation (PHIC), the local water districts
(LWDs), [19] and the Philippine Charity Sweepstakes Office
(PCSO) and the Philippine Amusement and Gaming
Corporation (PAGCOR), shall pay such rate of tax upon
their taxable income as are imposed by this Section upon
corporations or associations engaged in s similar business,
industry, or activity.
Section 30 NIRC
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:
(A) Labor, agricultural or horticultural organization not
organized principally for profit;
(B) Mutual savings bank not having a capital stock
represented by shares, and cooperative bank without
capital stock organized and operated for mutual
purposes and without profit;
(C) A beneficiary society, order or association, operating
for the exclusive benefit of the members such as a
fraternal organization operating under the lodge
system, or mutual aid association or a nonstock
corporation organized by employees providing for the
payment of life, sickness, accident, or other benefits
exclusively to the members of such society, order, or
association, or nonstock corporation or their
dependents;
(D) Cemetery company owned and operated exclusively
for the benefit of its members;
(E) Nonstock corporation or association organized and
operated exclusively for religious, charitable,
scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans, no part of its net income or
asset shall belong to or inure to the benefit of any
member, organizer, officer or any specific person;
(F) Business league chamber of commerce, or board of
trade, not organized for profit and no part of the net
income of which inures to the benefit of any private
stock-holder, or individual;
(G) Civic league or organization not organized for profit
but operated exclusively for the promotion of social
welfare;
(H) A nonstock and nonprofit educational institution;
(I) Government educational institution;
(J) Farmers' or other mutual typhoon or fire insurance
company, mutual ditch or irrigation company, mutual
or cooperative telephone company, or like
organization of a purely local character, the income of
which consists solely of assessments, dues, and fees
collected from members for the sole purpose of
meeting its expenses; and
(K) Farmers', fruit growers', or like association organized
and operated as a sales agent for the purpose of
marketing the products of its members and turning
back to them the proceeds of sales, less the
necessary selling expenses on the basis of the
quantity of produce finished by them;
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and character of
the foregoing organizations from any of their properties,
 real or personal, or from any of their activities conducted
for profit regardless of the disposition made of such
income, shall be subject to tax imposed under this Code.
RR No 20-2001
- Duly registered cooperatives dealing/transacting
business with members only shall be exempt from
paying the following taxes for which they are directly
liable: 1) Income Tax on income from operations; 2)
Value-Added Tax under Section 109 pars. (r), (s), (t) and
(u) of the Tax Code of 1997; 3) 3% Percentage Tax under
Section 116 of the Tax Code of 1997; 4) Donor's Tax on
donations to duly accredited charitable, research and
educational institutions, and reinvestment to socio-
economic projects within the area of operation of the
cooperatives; 5) Excise Tax under Title VI of the Tax Code
of 1997; 6) Documentary Stamp Tax imposed under Title
VII of the Tax Code of 1997, provided, however, that the
other party to the taxable document/transaction who is
not exempt shall be the one directly liable for the tax;
and 7) annual registration fee of P 500.00 under Section
236(B) of the Tax Code of 1997.
- Duly registered cooperatives dealing/transacting
business with both members and non-members with
accumulated reserves and undivided net savings of not
more than P 10 Million shall be exempt from all national
internal revenue taxes for which they are directly liable,
as enumerated above.
- On the other hand, if the accumulated reserves and
undivided net savings of the said cooperatives is more
than P 10 Million, they shall be exempt from the
following taxes: 1) Income Tax for a period of ten (10)
years from the date of registration with the CDA, subject
to specific conditions; 2) Value-Added Tax; 3) 3%
Percentage Tax; and 4) P 500.00 annual registration fee.
Said cooperatives are also entitled to limited or full
deductibility from the gross income of amount donated
to duly accredited charitable, research and educational
institutions and reinvestment to socio-economic projects
within the area of operation of the cooperative.
- The tax exemptions of the cooperatives does not extend
to their individual members. Thus, members of
cooperatives are liable to pay all the necessary taxes
under the Tax Code, including the tax on earnings
derived from their capital contribution. Provided,
however, that interests received by members of
cooperatives with accumulated reserves and undivided
net savings greater than P 10 Million, after the lapse of
the ten- year exemption, shall no longer be taxable in
the hands of such members.
- Notwithstanding the foregoing, all income of the
cooperative not related to its main/principal business/es
shall be subject to all appropriate taxes under the Tax
Code of 1997. This is applicable to all types of
cooperatives, whether dealing purely with members or
both members and non-members.
- The taxability of cooperatives to other internal revenue
taxes is specified in the Regulations. All cooperatives,
regardless of classification, are considered as
withholding agents and are required to file Withholding
Tax Returns and remit Withholding Taxes on all income
payments that are subject to withholding.
RMC No 33-2004
- An applicant jewelry enterprise must either be a single
proprietorship, cooperative, corporation, partnership or
organization established and duly authorized to do
business under Philippine Laws.
RMC 35-2012
- The income of recreational clubs from whatever source,
including but not limited to membership fees,
assessment dues, rental income and service fees are
subject to income tax. Any person regardless of W/N the
person engaged therein is a non-stock non-profit private
org or govt entity, is liable to pay VAT on the sale of
goods or services. The gross receipts of recreational
clubs including but not limited to membership fees,
assessment dues, rental income and service fees are
subject to VAT.
RMC 65-2012
- For tax purposes, the association dues, membership fees
and other assessment/charges collected by a
condominium corporation constitute income payments or
compensation for the beneficial services it provides to its
members and tenants.
- Accordingly gross receipts of condo corporations
including association dues, membership fees and other
assessments/charges are subject to VAT and Income Tax
and income payments made to it are subject to
applicable withholding taxes under existing regulations.
RMC 92013
- For tax purposes, association dues, membership fees
and other assessments/charges collected by a
homeowners association constitute income payments or
compensation for beneficial services it provide to tis
members and tenants.
- Association dues, membership fees and other
assessments collected by a homeowners association are
subject to VAT since they constitute income payment or
compensation for the beneficial services it provide to its
homeowner members. Those exempt from payment of
VAT under Section 109 of the NIRC are liable to pay
Percentage Tax.
RMC 67-2012
- Private non-profit hospitals and educational institutions
whose gross income from unrelated trade, business or
other activity does not exceed 50% of their total gross
income derived from all sources shall pay a tax of 10%
on their taxable gross income except those covered by
Section 27D of the NIRC. However, the ff shall be subject
to tax prescribed under Sec 27(A) of NIRC or the regular
corporate tax rate ont heir taxable income, except those
covered by Section 27(d) of NIRC
o Private non-profit hospitals and educational
institutions whose gross income from unrelated trade
business or other activity exceeds 50% of their total
gross income derived from all sources or
o Hospitals and educational institutions claiming to be
within the coverage of Section 27(B) of the NIRC that
fail to meet the above definition of proprietary and
non-profit.
- In all cases, whether Income Tax rates fall under Section
27(A) or 27(B) of the NIRC the institutions are likewise
subject to other applicable taxes, if warranties.
Collecto Sinco Educational Institution is tax exempt. The
rv corporation has never distributed any
Sinco dividends to its stockholders. Remuneration for
services rendered to the College is allowed by
law. This covers the money given to Sinco (as
salary) and Community Publishers (for
services). Tuition fee is the only source of
income to ensure that the College will keep its
operations goingallowed by law. That the
buildings and other property acquired by the
corporation will benefit the stockholders upon
dissolution too speculative
Jesus [Jesus Sacred Heart College is a non-profit
Sacred educational institution;
Heart the subject matter thereof involves income tax
College under the National Internal Revenue Code;
v CIR Jesus Sacred Heart College's purpose is
claiming for a direct conditional exemption
from taxation, and not merely as exclusion.]
At any rate, the main evidence of the purpose
of a corporation should be its articles of
incorporation and by-laws, for such purpose is
required by statute to be stated in the articles
of incorporation (Sec. 6, Act No. 1459), and the
by-laws outline the administrative organization
of the corporation (Sec. 20 and 21 of Act No.
1459, as amended), which, in turn, is supposed
to insure or facilitate the accomplishment of
said purpose. x x x".
CIR v CA The exemption claimed by YMCA is expressly
1998 disallowed by the very wording of then Section
27 of the NIRC which mandates that the
income of exempt organizations (such as the
YMCA) from any of their properties, real or
personal, be subject to the tax imposed by the
same Code. While the income received by the
organizations enumerated in Section 26 of the
NIRC is, as a rule, exempted from the payment
of tax in respect to income received by them
as such, the exemption does not apply to
income derived from any of their properties,
real or personal or from any of their activities
conducted for profit, regardless of the
disposition made of such income.
CIR v The term "independent contractors" include
CA, persons (juridical or natural) not enumerated
CTA, above (but not including individuals subject to
ADMU the occupation tax under Section 12 of the
1997 Local Tax Code) whose activity consists
essentially of the sale of all kinds of services
for a fee regardless of whether or not the
performance of the service calls for the
exercise or use of the physical or mental
faculties of such contractors or their
 employees.
Petitioner Commissioner of Internal Revenue
erred in applying the principles of tax
exemption without first applying the well-
settled doctrine of strict interpretation in the
imposition of taxes. It is obviously both illogical
and impractical to determine who are
exempted without first determining who are
covered by the aforesaid provision. The
Commissioner should have determined first if
private respondent was covered by Section
205, applying the rule of strict interpretation of
laws imposing taxes and other burdens on the
populace, before asking Ateneo to prove its
exemption therefrom.
Interpretation of Tax Laws. The doctrine in
the interpretation of tax laws is that (a)
statute will not be construed as imposing a tax
unless it does so clearly, expressly, and
unambiguously. . . . (A) tax cannot be imposed
without clear and express words for that
purpose. Accordingly, the general rule of
requiring adherence to the letter in construing
statutes applies with peculiar strictness to tax
laws and the provisions of a taxing act are not
to be extended by implication. In case of
doubt, such statutes are to be construed most
strongly against the government and in favor
of the subjects or citizens because burdens are
not to be imposed nor presumed to be imposed
beyond what statutes expressly and clearly
import.
Ateneos Institute of Philippine Culture never
sold its services for a fee to anyone or was
ever engaged in a business apart from and
independently of the academic purposes of the
university. Funds received by the Ateneo de
Manila University are technically not a fee.
They may however fall as gifts or donations
which are tax-exempt as shown by private
respondents compliance with the requirement
of Section 123 of the National Internal Revenue
Code providing for the exemption of such gifts
to an educational institution.
Transaction of IPC not a contract of sale nor a
contract for a piece of work. The transactions
of Ateneos Institute of Philippine Culture
cannot be deemed either as a contract of sale
or a contract for a piece of work. By the
contract of sale, one of the contracting parties
obligates himself to transfer the ownership of
and to deliver a determinate thing, and the
other to pay therefor a price certain in money
or its equivalent. In the case of a contract for a
piece of work, the contractor binds himself to
execute a piece of work for the employer, in
consideration of a certain price or
compensation. . . . If the contractor agrees to
produce the work from materials furnished by
him, he shall deliver the thing produced to the
employer and transfer dominion over the thing.
. . . In the case at bench, it is clear from the
evidence on record that there was no sale
either of objects or services because, as
adverted to earlier, there was no transfer of
ownership over the research data obtained or
the results of research projects undertaken by
the Institute of Philippine Culture.
Xavier [A]s a general rule, tax assessments by tax
School v examiners are presumed correct and made in
CIR good faith . All presumptions are in favor of the
correctness of a tax assessment. It is to be
presumed, however, that such assessment was
based on sufficient evidence. Upon the
introduction of the assessment in evidence, a
prima facie case of liability on the part of the
taxpayer is made. If a taxpayer files a petition
for review in the CTA and assails the
assessment, the prima facie presumption is
that the assessment made by the BIR is
correct, and that
in preparing the same, the BIR personnel
regularly performed their duties. This rule for
tax initiated suits is premised on several
factors other than the normal evidentiary rule
imposing proof obligation on the petitioner-
taxpayer: the presumption of administrative
regularity; the likelihood that the taxpayer will
have access to the relevant information;
and the desirability of bolstering the record-
keeping requirements of the NIRC.
However, the prima facie correctness of a tax
assessment does not apply upon proof that an
assessment is utterly without foundation,
meaning it is arbitrary and capricious. Where
the SIR has come out with a "naked
assessment," i.e., without any foundation
character, the determination of the tax due is
without rational basis. In such a situation, the
U.S. Court of Appeals ruled that the
determination of the Commissioner contained
in a deficiency notice disappears. Hence/ the
determination by the CTA must rest on all the
evidence introduced and its ultimate
determination must find support in credible
evidence."
CIR v A proprietary non-profit hospital is
St. subject to 10% tax under Section 27(b) of
Lukes the Tax Code.
Medical
Center FACTS: St. Luke's is a non-stock non-profit hospital.
The BIR assessed St. Luke's based on the argument
that Section 27(B) of the Tax Code should apply to it
and hence all of St. Luke's income should be subject
to the 10% tax therein as it is a more specific
provision and should prevail over Section 30 which is
a general provision. St. Luke's countered by saying
that its free services to patients was 65% of its
operating income and that no part of its income
inures to the benefit of any individual.
ISSUE: Does Section 27(B) have the effect of taking
proprietary non-profit hospitals out of the income tax
exemption under Section 30 of the Tax Code and
should instead be subject to a preferential rate of
10% on its entire income?
RULING: No. The enactment of Section 27(B) does
not remove the possible income tax exemption of
proprietary non-profit hospitals. The only thing that
Section 27(B) captures (at 10% tax) in the case of
qualified hospitals is in the instance where the
income realized by the hospital falls under the last
paragraph of Section 30 such as when the entity
conducts any activity for profit. The revenues derived
by St. Luke's from pay patients are clearly income
from activities conducted for profit.
St. Lukes cannot claim full tax exemption under
Section 30 because it has paying patients and this is
notwithstanding the fact that it is a non-profit
hospital. For Section 27(B) to apply, the hospital must
be non-profit which means that no net income or
asset accrues to or benefits any member or specific
person and all the activities of the hospital are non-
profit. On the other hand, Section 30(E) and (G), while
providing for an exemption is qualified by the last
paragraph which, in turn, provides that activities
conducted for profit shall be taxable. Section 30(E)
and (G) requires that an institution be operated
exclusively for charitable purposes to be completely
exempt from income tax. In this case, however, St.
Lukes is not operated exclusively for charitable
purposes insofar as its revenues from paying patients
are concerned. Such revenue is subject to income tax
at 10% under Section
DLSU v A letter of authority should cover taxable
CIR period not exceeding one year.
The LOA of Authority (LOA) issued by the
Bureau of Internal Revenue for the examination
of the taxpayers tax liabilities covers Fiscal
Year Ending 2003 & Unverified Prior Years.
Pursuant thereto, the BIR issued assessment
for the years 2001, 2002 and 2003. The Court
ruled that an LOA should cover a taxable
period not exceeding one taxable year. Hence,
the practice of issuing LOAs covering audit of
unverified prior years is prohibited. The Court
invalidated the assessments for taxable years
2001 and 2002, being in violation of Revenue
Memorandum Order No. 43-90.