Course Outline

Tax I

INCOME TAX

1. Definitions

Section 22 (A) to (I), (Z), (GG), and (HH), Tax Code

Sections 25 (A)(1), 31, 35 (B), and 39 (A), Tax Code
Republic Act 10754 (March 23, 2016)

Resident citizens and resident aliens

Garrison vs. Court of Appeals (July 19, 1990)
Non-resident citizens
RR 1-79 (January 8, 1979) (Section 2 only)
RR 5-01 (July 31, 2001)
BIR Ruling 33-00 (September 5, 2000)
BIR Ruling DA 095-05 (March 29, 2005)
Non-resident aliens engaged in business in the Philippines
Sec. 5 & 6, RR 2
Corporations
AFISCO Insurance Corporation vs. Court of Appeals (January 25, 1999)
Pascual vs. Commissioner of Internal Revenue (October 18, 1988)
Obillos vs. Commissioner of Internal Revenue (October 29, 1985)
Oña vs. Commissioner of Internal Revenue (May 25, 1972)

RR 10-2012 (June 1, 2012)

BIR Ruling 108-2010 (October 19, 2010)

2. Income

In general
Madrigal vs. Rafferty (August 7, 1918)
Fisher vs. Trinidad (October 30, 1922)
Limpan Investment Corporation vs. Commissioner of Internal Revenue (July 26, 1966)
Conwi vs. Court of Tax Appeals ( August 31, 1992)
Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (March 28, 1955)
Cesarini vs. United States 296 F. Supp. 3 (February 17, 1969)
Hornung vs. Comissioner of Internal 47 T.C. 428 (January 27, 1967)
Murphy vs. Internal Revenue Service 493 F3rd 170 – US Court of Appeals, District of Columbia
Circuit (July 3, 2007)
Officemetro Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 8382, June 3,
2014)
Statutory “inclusions”
Section 32 (A), Tax Code as amended by Republic Act 10963

Compensation for services

Section 78 (A), Tax Code

Old Colony Trust Co. vs. Commissioner of Internal Revenue, 279 US 716 (June 3, 1929)

Rents
Helvering vs. Bruun, 309 US 461 (March 25, 1940)

Dividends
Section 73 (A) to (C), Tax Code

Commissioner of Internal Revenue vs. Court of Appeals (January 20, 1999)

Wise & Co., Inc. vs. Meer (June 30, 1947)

Sections 250-254, and 256, RR 2

BIR Ruling 322-87 (October 19, 1987)

BIR Ruling 479-11 (December 5, 2011)
BIR Ruling 039-02 (November 11, 2002)

“From whatever source”

Section 34 (C)(1), Tax Code

James vs. United States, 366 US 213 (May 15, 1961)

Commissioner of Internal Revenue vs. Spouses Manly (November 24, 2014)

RMC 16-2013 (February 8, 2013)

Section 50, RR 2
RMC 88-2012 (December 27, 2012)

Inventories
Section 41, Tax Code

BIR Ruling DA 128-08 (August 11, 2008)

Exclusions

Section 32 (B), Tax Code as amended by Republic Act 10963

Republic Act 10653, July 28, 2014

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 Retirement benefits, etc.
Commissioner of Internal Revenue vs. Court of Appeals (March 23, 1992)
Commissioner of Internal Revenue vs. Court of Appeals (October 17, 1991)
Re: Request of Atty. Bernardo Zialcita (October 18, 1990)
Intercontinental Broadcasting Corporation vs. Amarilla (October 27, 2006)

RMC 27-2011 (July 1, 2011)

Income derived by foreign government

Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation (January 22, 1990)

De minimis/ PERA
Republic Act 9505

RR 8-00 (August 21, 2000)

RR 5-2011 (March 16, 2011)
RR 17-2011 (October 27, 2011)
RR 8-2012 (May 11, 2012)
RR 1-2015 (January 5, 2015)

3. General Principles

Section 23, Tax Code

4. Source of Income Rules

Section 42, Tax Code

Gross income from sources within Phils.

Commissioner of Internal Revenue vs. Marubeni Corporation (December 18, 2001)
Commissioner of Internal Revenue vs. BOAC (April 30, 1987)
Commissioner v. CTA and Smith Kline & French Overseas (January 17, 1984)
Philippine Guaranty Co., Inc. vs. Commissioner of Internal Revenue (April 30, 1965)
Howden & Co., Ltd. Vs. Collector of Internal Revenue (April 14, 1965)
Philippine American Life Insurance Company, Inc. vs. Court of Tax Appeals – CA-GR Sp. No. 31283
(April 25, 1995)
Commissioner of Internal Revenue vs. Baier-Nickel (August 29, 2006)
A. Soriano Y Cia vs. Collector of Internal Revenue (August 31, 1955)

Quill Corp. vs. North Dakota, 504 US 298 (May 26, 1992)
Vodafone International Holdings B.V. vs. Union of India & Anr. (Supreme Court of India, Civil Appeal No.
733 of 2012; January 20, 2012)

RAMO 1-95 (March 21, 1995)

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 RAMO 4-86 (April 5, 1986)

5. Deductions

Sections 34-36, Tax Code (as amended by Republic Act 10963)

Business expenses
Republic Act 10028 (Sections 3 & 14 only)
Republic Act 8502
Republic Act 8525 (Sections 1 to 5 only)
Republic Act 9999
Republic Act 7277 (Section 8 only)

Commissioner of Internal Revenue vs. Isabela Cultural Corporation (February 12, 2007)
ING Bank, N.V. vs. Commissioner of Internal Revenue (July 22, 2015)
Commissioner of Internal Revenue vs. General Foods (Phils.) Inc. (April 24,
2003)
Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue (February 25, 1982)
Atlas Consolidated Mining & Development Corporation vs. Commissioner of Internal Revenue
(January 27, 1981)
Zamora vs. Collector of Internal Revenue (May 31, 1963)
C.M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue (November 28, 1969)
Calanoc vs. Collector of Internal Revenue (November 29, 1961)
Kuenzle & Streiff, Inc. vs. Collector of Internal Revenue (October 20, 1959)

RR 10-2002 (July 10, 2002)

RR 1-2009 (December 9, 2008)
RR 7-2010 (July 20, 2010)

Interest (as amended by Republic Act 9337)

Paper Industries Corporation of the Philippines vs. Court of Appeals (December 1, 1995)
Commissioner of Internal Revenue vs. Vda. de Prieto (September 30, 1960)

RR 13-2000 (November 20, 2000)

Interest arbitrage

BIR Ruling No. 006-00 (January 5, 2000)

Taxes
Commissioner of Internal Revenue vs. Lednicky (July 31, 1964)

BIR Ruling 123-13 (March 25, 2013)

Losses

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 Section 38, Tax Code

Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue (July 29, 2013)

RR 12-77 (October 6, 1977)

RMO 31-2009 (October 16, 2009)

Forex losses
BIR Ruling 206-90 (October 30, 1990)
BIR Ruling No. 144-85 (August 26, 1985)

Bad Debts
Philex Mining Corporation vs. Commissioner of Internal Revenue (April 16, 2008)
Philippine Refining Company vs. Court of Appeals (May 8, 1996)
Fernandez Hermanos, Inc. vs. Commissioner of Internal Revenue (September 30, 1969)

RR 5-99 (March 10, 1999)

Depreciation
Basilan Estates, Inc. vs. Commissioner of Internal Revenue (September 5, 1967)
Limpan Investment Corporation vs. Commissioner of Internal Revenue (July 26, 1966)

RR 12-2012 (October 12, 2012)

Depletion
Consolidated Mines, Inc. vs. Court of Tax Appeals (August 29, 1974)

Charitable and other contributions

Republic Act 9500 (Section 25 only)
Republic Act 9521, Section 3

BIR Ruling 19-01 (May 10, 2001)

Research and Development

3M Philippines, Inc. vs. Commissioner of Internal Revenue (September 26, 1988)

Additional requirements for deductibility

RMO 38-83 (November 14, 1983)
RR 12-2013 (July 12, 2013)

Optional Standard Deduction

Section 34 (L), Tax Code as amended by Republic Act Nos. 9504 and 10963

RR 2-2010 (February 18, 2010)

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 RR 16-2008 (November 26, 2008) (Sections 1 to 7 only)

NOLCO

Paper Industries Corporation of the Philippines vs. Court of Appeals (December 1, 1995)

RR 14-01 (August 27, 2001)

BIR Ruling 30-00 (August 10, 2000)

Premium payments on health and/or hospitalization insurance

Non-deductible expenses
Section 36, Tax Code

Esso Standard Eastern, Inc. vs. Commissioner of Internal Revenue (July 7, 1989)

Section 119-122, RR 2

6. Individuals

Sections 24 (as amended by Republic Act Nos. 9504 and 10963) & 25 (as amended by Republic Act 10963),
Tax Code

Ordinary Income
Passive Income
Section 22 (T) to (Y), Tax Code

RR 01-2011 (February 24, 2011)

RR 14-2012 (November 7, 2012)

Capital Gains Tax

Section 22 (Z) and 39 (B), Tax Code

SMI-Ed Philippines Technology, Inc. vs. Commissioner of Internal Revenue (November 12, 2014)
Supreme Transliner, Inc. vs. BPI Family Savings Bank, Inc. (February 23, 2011)
Department of Public Works and Highways vs. Soriano (February 25, 2015)

RR 8-98 (August 25, 1998)

RR 4-99 (March 9, 1999)
RR 13-99 (July 26, 1999)
RR 14-2000 (November 20, 2000)
RR 06-2008 (April 22, 2008)
RR 06-2013 (April 11, 2013)
RMC 37-2012 (August 3, 2012)
BIR Ruling DA 029-08 (January 23, 2008)

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 BIR Ruling DA 287-07 (May 8, 2007)

OCWs/Senior Citizens/Disabled/Employees of Foreign Governments

Republic Act 9257, Section 4 (c) only

M.E. Holdings Corporation vs. CIR & CTA (March 3, 2008)

Manila Memorial Park, Inc. vs. Secretaries of Department of Social Welfare and Development and
Department of Finance (December 3, 2013)

RR 1-2009 (December 9, 2008)

RR 7-2010 (July 20, 2010)
RR 1-2011 (February 24, 2011)
RMC 031-2013 (April 12, 2013)

Personal and additional exemptions/PERA

Republic Act 10754

Republic Act 10165, Sections 3-5 & 22-24 only
Republic Act 9504
Republic Act 9505

Pansacola vs. Commissioner of Internal Revenue (November 16, 2006)

RR 17-2011 (October 27, 2011)

7. Partnerships

Section 26 & 73 (D), Tax Code

RMC 89-2012 (December 27, 2012)

RR 2-2010 (February 18, 2010)

8. Corporations

Sections 27 (A) & (D), and 28, Tax Code as amended by Republic Act Nos. 9294, 9337, and 10963)

(1) Domestic Corporations

Ordinary Income
Passive Income

China Banking Corporation vs. Commissioner of Internal Revenue (February 27, 2013)
Banco de Oro vs. Commissioner of Internal Revenue (January 13, 2015)

Capital Gains Tax

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RR 4-99 (March 9, 1999)
RR 06-2008 (April 22, 2008)

(2) Resident Foreign Corporations

Section 28 (A), Tax Code as amended by Republic Act 9294

In general
International Carrier

Republic Act No. 10378 (March 7, 2013)

Air New Zealand vs. Commissioner of Internal Revenue (CTA Case, January 30, 2008)
Commissioner of Internal Revenue vs. BOAC (April 30, 1987)
United Airlines, Inc. vs. Commissioner of Internal Revenue (September 29, 2010)
RR 15-2002 – Sections 1 to 5 only

OBUs/FCDUs

RR 14-2012 (November 7, 2012)

Branch Profit Remittance Tax

Bank of America NT & SA vs. Court of Appeals (July 21, 1994)
Compania General de Tabacos de Filipinas vs. Commissioner of Internal Revenue – CTA
Case No. 4141 (August 23, 1993) & 4451 (November 17, 1993)

ITAD BIR Ruling No. 018-09 (June 23, 2009)

Regional or Area Headquarters and ROHQs

Section 22 (DD) & (EE), Tax Code

RR 11-2010 (October 26, 2010)

(3) Nonresident Foreign Corporations

Section 28 (B), Tax Code

In general
Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc. (June 25, 1999)
Marubeni Corporation vs. Commissioner of Internal Revenue (September 14, 1989)
N.V. Reederij “Amsterdam” and Royal InterOcean Lines vs. Commissioner of Internal
Revenue (June 23, 1988)
Special non-resident foreign corporations
Tax on Certain Incomes of Non-resident Foreign Corporations
Interest on foreign loans

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 Intercorporate dividends
Section 28 (B)(5)(b), Tax Code, as amended by Republic Act 9337
Commissioner of Internal Revenue vs. Procter & Gamble Philippines
Manufacturing Corp. (December 2, 1991)
BIR Ruling DA-145-07 (March 8, 2007)
Income covered by Tax Treaties
Mirant (Philippines) Operations Corporation vs. Commissioner of Internal
Revenue (CTA EB Case No. 40, June 7, 2005 as affirmed by SC Minute
Resolution dated February 18, 2008)
Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue (August
19, 2013)

RMO 072-10 (August 25, 2010)

ITAD Ruling 102-02 (May 28, 2002)
ITAD Ruling 024-13 (February 11, 2013)

9. Withholding Tax

Section 22 (K), Tax Code

Final Withholding Tax at Source

Section 57 (A), Tax Code as amended by Republic Act 10963
Commissioner of Internal Revenue vs. Smart Communication, Inc. (August 25, 2010)
Section 2.57.1., RR 2-98 (April 17, 1998)
Creditable Withholding Tax
Section 57 (B), Tax Code as amended by Republic Act 10963
Filipinas Synthetic Fiber Corporation vs. Court of Appeals (October 12, 1999)
Philippine National Bank vs. Commissioner of Internal Revenue (March 18, 2015)
Section 2.57.2., RR 2-98 (April 17, 1998)
RR 12-98 (August 14, 1998)
Return and Payment of Tax
Section 58, Tax Code as amended by Republic Act 10963
Withholding on Wages
Section 78 – 83, Tax Code
Section 2.78, RR 2-98 (April 17, 1998)
RR 1-2006 (December 29, 2005)
RMC 39-2012 (August 3, 2012)
Withholding Tax by Government Agencies
Section 2.57.2., RR 2-98 (April 17, 1998)

10. Special Rules

(1) Minimum Corporate Income Tax

Section 27 (E), and 28 (A)(2), Tax Code

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 Chamber of Real Estate Builders’ Association, Inc. vs. Executive Secretary (March 9, 2010)
Commissioner of Internal Revenue vs. Philippine Airlines , Inc. (July 7, 2009)

RR 9-98 (August 25, 1998) – except Sec. 2.28 (E)(7) “Accounting treatment” – as amended by RR 12-2007
(October 10, 2007)

(2) Improperly Accumulated Earnings Tax

Section 29, Tax Code

The Manila Wine Merchants, Inc. vs. Commissioner of Internal Revenue (February 20, 1984)
Commissioner of Internal Revenue vs. Tuason (May 15, 1989)
Cyanamid Philippines, Inc. vs. Court of Appeals (January 20, 2000)
RR 2-01 (February 12, 2001)
RMC 35-2011 (March 14, 2011)
BIR Ruling 25-02 (June 25, 2002)

(3) Fringe Benefits Tax

Section 22(AA) and 33, Tax Code as amended by Republic Act 10963

Benaglia vs. Commissioner of Internal Revenue, 36 BTA 838 (November 5, 1937)

RR 3-98 (January 1, 1998)

RMC 88-2012 (December 27, 2012)
RMC 79-2014 (October 31, 2014)

(4) Transfer Pricing

Section 50, Tax Code

Commissioner of Internal Revenue vs. Filinvest Development Corporation (July 19, 2011)
Her Majesty the Queen vs. GlaxoSmithKline Inc., 2012 SCC 52 (Supreme Court of Canada, Court File
33874; October 18, 2012)

RR 2-2013 (January 23, 2013)

RMO 63-99 (July 19, 1999)

11. Special Entities

(1) Proprietary Educational Institutions and Hospitals

Section 27 (B), Tax Code as amended by Republic Act 10963

Commissioner of Internal Revenue vs. St. Luke’s Medical Center, Inc. (September 26, 2012)

RMC 67-2012 (October 31, 2012)

RMC 76-03 (November 14, 2003)

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 (2) GOCCs

Section 27 (C), Tax Code as amended by Republic Act Nos. 9337 and 10963

Republic Act 10026

Philippine Amusement and Gaming Corporation vs. Bureau of Internal Revenue (December 10,
2014)

(3) Exempt Corporations

Article XIV, Section 4 (3), Constitution

Section 30, Tax Code

Executive Order 226, Article 39

Republic Act 7916, Sections 23 – 25
Republic Act 9178
Republic Act 9593, Sections 4 & 86-88
Republic Act 9856
Republic Act 10165, Sections 3-5 & 22-24 only

Dumaguete Cathedral Credit Cooperative vs. Commissioner of Internal Revenue (January 22,
2010)
Commissioner of Internal Revenue vs. G. Sinco Educational Corp. (October 23, 1956)

RR 13-2011 (July 25, 2011)

RMC 35-2012 (August 3, 2012)
RMC 9-2013 (January 29, 2013)
RMC 51-2014 (June 6, 2014)

(4) Insurance Companies

Section 37, Tax Code

12. Capital Gains and Losses

Section 39, Tax Code

Capital assets/income
Calasanz vs. Commissioner of Internal Revenue (October 9, 1986)
Section 132, RR 2
BIR Ruling 27-02 (July 15, 2002)
Ordinary assets/income
Section 22 (Z), Tax Code

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 Tuason vs. Lingad (July 31, 1974)
Net capital gain, net capital loss
Percentage taken into account
Limitation on capital loss
China Banking Corporation vs. Court of Appeals (July 19, 2000)

13. Determination of Gain or Loss from Sale or Transfer of Property

Section 40, Tax Code

Section 136-143, RR 2
Computation of gain or loss
Cost or basis for determining gain or loss
Exchange of property (Tax-free exchange)
Definitions
Section 40 (C)(6), Tax Code
Merger or consolidation
Commissioner of Internal Revenue vs. Rufino (February 27, 1987
Transfer of "substantially all" the assets
Transfer of property for shares of stocks
Commissioner of Internal Revenue vs. Filinvest Development Corporation (July 19, 2011)
BIR Ruling No. 274-87 (September 9, 1987)
Administrative requirements in case of tax-free exchanges
RR 18-01 (November 13, 2001) – (only Sections 3 to 6 and 9 to 12)
RMR 1-02 (April 25, 2002)
Assumption of liability in tax-free exchanges
Cost or basis in tax-free exchanges
Business Purpose
Gregory vs. Helvering, 293 U.S. 465; 55 S.CT. 266 (January 7, 1935)
Rulings
RMC 40-2012 (August 3, 2012)
Losses from Wash Sales of Stocks or Securities
Section 38, Tax Code
Section 131, RR 2

14. Administrative Provisions

(1) Accounting Periods and Methods

Sections 43-50, Tax Code

Section 166-177, RR 2
Section 51-53, RR 2

Accounting method - cash (actual or constructive) or accrual

Hybrid method
Consolidated Mines, Inc. vs. Court of Tax Appeals (August 29, 1974)

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Percentage of completion method
Section 48, Tax Code
Section 44, RR 2
Change of accounting period
Installment basis
Bibiano V. Banas, Jr. vs. Court of Appeals (February 10, 2000)
Allocation of income and deductions

(2) Returns and Payment of Taxes

RR 019-11 (December 9, 2011)

Individual Return
Section 51 & 56, Tax Code as amended by Republic Act 10963

Who are required to file

Those not required to file
Where to file
When to file
Where to pay
Capital gains on shares of stocks and real estate
Quarterly declaration of income tax
Section 74, Tax Code as amended by Republic Act 10963

Corporation Returns
Section 52, 53 & 56, Tax Code
Quarterly Income Tax
Section 75, Tax Code
Final Adjustment Return
Section 76, Tax Code
Systra Philippines, Inc. vs. Commissioner of Internal Revenue (September 21, 2007)
Philam Asset Management, Inc. vs. Commissioner of Internal Revenue (December 14, 2005)
Commissioner of Internal Revenue vs. Far East Bank & Trust Company (March 15, 2010)
Weinbrenner & Inigo Insurance Brokers, Inc. vs. Commissioner of Internal Revenue
(January 28, 2015)
Where to file
When to file
Section 77, Tax Code
When to pay
Capital gains on shares of stock
Return of corporations contemplating dissolution/reorganization
Section 52 (C), Tax Code
Sec. 244, RR 2
Bank of the Philippine Islands v. Commissioner of Internal Revenue - CA-GR Sp. No. 38304
(April 14, 2000)

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 Philippine Deposit Insurance Corporation vs. Bureau of Internal Revenue (June 13, 2013)
Returns of GPPs
Section 55, Tax Code
Returns of Receivers, Trustees in Bankruptcy or Assignees
Section 54, Tax Code
Others not captured
Section 59, Tax Code

Other income tax requirements

Section 67-72, Tax Code

United Airlines, Inc. vs. Commissioner of Internal Revenue (September 29, 2010)

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