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Republic of the Philippines

BATANGAS STATE UNIVERSITY


Gov. Pablo Borbon Campus I
Rizal Avenue Extension, Batangas City

COLLEGE OF LAW
Bachelor of Laws

COURSE SYLLABUS WITH SPECIFICATION

UNIVERSITY VISION
A globally recognized institution of higher learning that develops competent and morally
upright citizens who are active participants in nation building and responsive to the
challenges of 21st century.

UNIVERSITY MISSION
Batangas State University is committed to the holistic development of productive citizens
by providing a conducive learning environment for the generation, dissemination and
utilization of knowledge through innovative education, multidisciplinary research
collaborations, and community partnerships that would nurture the spirit of nationhood
and help fuel national economy for sustainable development.

COURSE CODE: LAW 629


COURSE TITLE: TAXATION I
CREDIT UNIT: 3 units
PRE-REQUISITE: Constitutional Law 1
ACADEMIC YEAR:AY: 2019-2020, First Semester
REFERENCE LEBMO: LEBMO No. 5, Series of 2016 and LEBMO No. 1, Series
of 2011

PROGRAM EDUCATIONAL OBJECTIVES


The College of Law is steadfast in its vision of academic excellence. It is rigorous in the
maintenance of academic standards. It is likewise demanding when it comes to faculty
hiring. Thus, the faculty consists of trial judges, seasoned practitioners, and scholars, all
whom possess the work ethic of a competent and dedicated law professor. Just as Rome
was not built in one day, the Batangas State University College of Law is optimistic that,
guided by its vision of academic excellence, it will in due time produce competent and
socially responsible lawyers.

PHILOSOPHY
The general principles of taxation and statutory provisions on income taxation, including
pertinent revenue regulations.

AUDIENCE
The course is intended for third-year law students. Students should have a good grasp of
the basics of Constitutional Law, Political Law, Obligations and Contracts,
Parternerships, Agencies and Trust, Corporation Law, and Remedial Law.

STUDENT OUTCOMES
Student Outcomes

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a. Develop clear understanding of basic principles, rules and doctrines 
b. Define and access information needs; assess and organize information
and knowledge; produce, share, and utilize information and knowledge 
c. Apply the basic principles, rules and doctrines to hypothetical and 
actual cases
d. Demonstrate effective lawyering skills
e. Conduct legal research 
f. Adhere to ethical standards and practices
g. Know and practice rights and responsibilities and accountabilities in
the legal profession
h. Engage in lifelong learning and understanding of the need to keep 
abreast of the developments in the legal profession
i. Effectively communicate orally and in writing using both English and
Filipino 
j. Recognize professional, social and ethical responsibility 

INTENDED LEARNING OUTCOMES


1. Define basic principles, rules and doctrines of Philippine Taxation and Income
Taxation;
2. Identify and discuss concepts in both Philippine Taxation and Income Taxation;
3. Apply these basic principles, rules and doctrines to hypothetical and actual cases;
and
4. Analyze provision of laws and jurisprudence.

RELATIONSHIP TO STUDENT OUTCOMES


Mapping of Intended Learning Outcomes vs Student Outcomes

Intended Applicable Student Outcomes


Learning a B c d e f G h i j
Outcomes
ILO 1      
ILO 2      
ILO 3       
ILO 4       

SPECIFIC OBJECTIVES

Topics ILO 1 ILO 2 ILO 3 ILO 4


 Fundamental Principles of Taxation  ✓ ✓ ✓
 Income and Taxable Income ✓ ✓ ✓ ✓
 Taxpayers ✓ ✓ ✓ ✓
 Tax Base ✓ ✓ ✓ ✓
 Tax Rates ✓ ✓ ✓ ✓
 Deductions ✓ ✓ ✓ ✓
 Individual Income Taxation ✓ ✓ ✓ ✓
 Corporate Taxation ✓ ✓ ✓ ✓
 Filing of Returns and Payment ✓ ✓ ✓ ✓

TEACHING, LEARNING AND ASSESSMENT STRATEGIES

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Teaching and Learning Strategies
All classes will be conducted utilizing a combination of the Socratic method of recitation,
workshop, and a practical application of the laws which may include the use of social
media that may be deemed appropriate to facilitate a better understanding of the course.

Law school is a professional school. Students must come to class prepared to recite the
assignments for the day. Soft copies of the Supreme Court decisions for discussion may
be downloaded from http://sc.judiciary.gov.ph, www.lawphil.net or the website of Chan
Robles.

Assessment Strategies
Students’ level of comprehension of the lessons would be assessed every meeting through
the conduct of regular recitation and would be further tested by the conduct of quizzes,
midterm exam and final exam.

COURSE REQUIREMENTS
1. Written Paper– Students in groups of 2 will be required to submit their written
report of not more than 10 pages on a topic of their choice related to TAXATION.
It may be a proposed change in the law or an in-depth research or analysis of a
provision of law or a recent significant Supreme Court decision. The written
paper must be submitted on or before the last day of classes. Late submission
will not be given any credit.

2. Recitation – Every meeting or class day, students will be called randomly to recite
on the provisions assigned for the day. Students whose class cards are drawn for
recitation but are absent will be given a grade of “5.”

3. Quizzes – Quizzes shall be given on topics or cases assigned for the day or for
topics discussed in previous sessions.

4. Mid-term exam – The Mid-term exam is a two (2) hour exam to be given on the
date assigned by the College for the class exam. It is a comprehensive exam
testing the ability of the student to apply the knowledge of the law in practical
situations. It will also include objective type of questions.

5. Final Exam – The final exam is a two (2) hour exam to be given on the date
assigned by the College for the class exam.

6. Attendance – For allowable number of absences, we shall follow university


policy. Those absent for beyond the allowable meetings by Mid-Term exams
shall be dropped automatically.

Bonus: A student with perfect attendance for the entire semester shall be entitled to an
additional three (3) percentile points on his grade. Therefore, if a student has a
computed grade of 85% based on the breakdown given above, then the final grade will be
88%.

7. Missed Exams - No student is excused from taking the midterm and final exams. The
only exceptions are death within the immediate family and sickness by the student, which
must be substatntiated by a death certificate or medical certificate, as the case may be, to
be submitted to the professor at least one day before the scheduled date of exam.

8. Consultation - Students may communicate with the professor for consultation via
email at attyedm@gmail.com.

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9. The final grade will be determined as follows:

Quizzes 15 %
Recitation 15 %
Written Paper 10 %
Midterm Exams 30 %
Final Exams 30 %

100 %
The conduct of Preliminary and Semi-final Examinations shall be discretionary on
the part of the professor. Should the professor decide to administer the said
exams, the final grade will be determined as follows:

Quizzes 15 %
Recitation 15 %
Written Paper 10 %
Prelims 5%
Midterm Exams 25 %
Semi-final Exams 5%
Final Exams 25 %
100 %

COURSE POLICIES

Grading System

The work of students shall be graded at the end of each term in accordance with
the following system:

Numerical Grade Percentage Equivalent Description


1.00 98-100 Excellent
1.25 94-97 Superior
1.50 90-93 Very Good
1.75 88-89 Good
2.00 85-87 Meritorious
2.25 83-84 Very Satisfactory
2.50 80-82 Satisfactory
2.75 78-79 Fairly Satisfactory
3.00 75-77 Passing
5.00 Below 75 Failure
Inc. *Incomplete
Drp Dropped

Students who will get a grade of 70-74 must be given a removal examination. A
grade of “3.0’ will be given to those who will pass the removal examination and those
who will fail will be given a grade of “5.0”.

*A grade of “Incomplete” must be complied with by the student within one (1)
semester or one hundred fifty (150) days. A student who fails to complete the
deficiency/deficiencies at the end of the succeeding semester shall automatically obtain a
grade of 5.0 in the course.

Attendance Policy

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Prompt and regular attendance of students is required. Total unexcused absences
shall not exceed ten (10) percent of the maximum number of hours required per course
per semester (or per summer term). A semester has 18 weeks. For example, a semestral
subject with :
 3 units (3 hrs lec), 10% x 3 x 18 = 5.4 hrs or 6 hrs.
 3 units (2 hrs lec, 3 hrs lab), 10% x 5 x 18 = 9 hrs.
 5 units (3 hrs lec, 6 hrs lab), 10% x 9 x 18 = 16.2 hrs or 16 hrs.
Please refer to the provisions in the Norms of Conduct for the full text of
guidelines for the attendance.

Missed Exams
In the event a student will miss any of the course requirements, he is solely responsible
for all the course materials/requirements taken in his absence. As a policy of the course,
make-up examination is not given. Grade for the missed major examination due to valid
justification(s) may be considered for a make-up examination.

Academic Dishonesty

Academic dishonesty includes acts such as cheating during examinations or


plagiarism in connection with any academic work. Such acts are considered major
offenses and will be dealt with according to the University’s Student Norms of Conduct.

Dropping

Dropping must be made official by accomplishing a dropping form and


submitting it at the Registrar’s Office before the midterm examination. Students who
officially drop out of class shall be marked “Dropped” whether he took the preliminary
examination or not and irrespective of their preliminary grades.

A student who unofficially drops out of class shall be given a mark of “5.0” by the
instructor.

Other Policies

 It is imperative that you bring with you hard copies of the cases assigned.

 Use of cellular phone is absolutely prohibited.

 Whether you are reciting or not, only five things should be on top of your
desk:

1. Your Outline;
2. Your hard copies of the cases assigned;
3. Your “Codal” (Tax Code, as amended by the TRAIN Law);
4. Your notebook or pad paper, for note-taking (sample will be
shown on the first day of class); and
5. Your pen/s.

 Other rules shall be announced on the first day of class, or at anytime


when the need arises, respecting of course the requirements of due process
and other academic rights of students.

ACADEMIC INFRASTRUCTURE

References

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The references listed are textbooks available in bookstores and (some) in our
campus library. All students are encouraged to gain access of these holdings for
better understanding and comprehension of our course. These books are used as
references:

1. THE 1997 INTERNAL REVENUE CODE, as amended


2. A TREATISE ON TAX PRINCIPLES AND REMEDIES, Eric Recalde (2009)
(textbook)
3. A TREATISE ON PHILIPPINE INTERNAL REVENUE TAXES, Eric Recalde
(2014) (textbook)
4. THE FUNDAMENTALS OF TAXATION, Hector S. De Leon and Hector M. De
Leon, Jr. (2009).
5. LAW OF BASIC TAXATION IN THE PHILIPPINES, Benjamin B. Aban (2001).
6. PHILIPPINE INCOME TAX, Victorino C. Mamalateo (2004).
7. TRAIN LAW VS. NIRC, Justice Catherine Manahan, (2018).
8. BAR REVIEWER ON TAXATION, Reynaldo Geronimo (2009).

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TENTATIVE COURSE OUTLINE/CALENDAR
Course outline

GENERAL PRINCIPLES OF TAXATION

I. THE POWER OF TAXATION


A. Taxation
1. Definition of taxation
2. Nature of taxation
3. Essential elements of taxation
4. Theory or underlying basis of taxation
a) Lifeblood Theory
b) Benefits-Protection Theory
c) Jurisdiction over Subjects and Objects
5. Purposes and Objectives of Taxation
6. Phases or stages of taxation
a) Levy
b) Collection
7. Taxation compared with the other powers
a) When an imposition is a tax measure
(1) Tio v. Videogram Regulatory Board, G.R. No. L-
75697, 18 June 1987
(2) PAL v. Edu, G.R. No. L-41383, 15 August 1988
b) Conclusion
(1) Test/s
8. Taxes
a) Definition
b) Characteristics/elements of taxes
c) Classification of Taxes
(1) As to the authority imposing the tax
(2) As to the object being taxed
(3) As to who bears the burden of taxation
(4) As to tax base
(5) As to tax rate
(6) According to Purpose
d) Taxes are personal to the taxpayer.

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(1) Piercing doctrine in corporation law
(a) Cases
(i) CIR v. Norton and Harrison, 11
SCRA 714
(ii) Marvel Building vs. David, 94 Phil.
376
(iii) Lidell & Co. v. Collector of Internal
Revenue, 1 SCRA 160
(iv) Yutivo Sons Hardware v. CTA, 2
SCRA 632
(b) Conclusion
(i) Formula for piercing in tax cases
(ii) What must be proved
(iii) What to look for
(iv) Takeaway (impact on business/BIR)
e) Distinctions between Tax and other impositions
(1) Tax vs. fee
(a) Distinctions
(b) Case: Angeles University Foundation v.
Angeles City G.R. No. 189999. June 27, 2012.
(2) Tax vs. debt
(a) Distinctions
(b) Exceptions to the rule that taxes are not
debts:
(3) Tax vs. Toll
(4) Tax vs. Penalty
(5) Tax vs. Special Assessment
B. No-no’s in Taxation (Doctrines) ***
1. No interest on tax refunds
2. No prescription on taxes
3. No liberal construction of tax exemptions
a) Soriano v. Secretary of Finance Soriano v. Secretary of
Finance, 24 January 2017, [G.R. No. 184450. January 24, 2017.]
4. No Injunction (Sec. 218, NIRC; Sec. 11, New CTA Law)
a) Tridharma Marketing Corporation v. CTA and CIR. [G.R.
No. 215950. June 20, 2016.]

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b) Spouses Pacquiao v. CTA [G.R. No. 213394. April 6,
2016.]
5. No writ of execution against the gov’t (Municipality of San
Miguel, Bulacan v. Hon. Oscar Fernandez, G.R. No. L-61744 June 25,
1984)
6. No set-off
a) The cases
(1) Republic v. Mambulao Lumber, G.R. No. L-177725,
28 February 1962
(2) Domingo v. Garlitos, 18 SCRA 443
(3) Francia v. IAC, 162 SCRA 753
(4) Philex Mining v. CIR, G.R. No. 125704, 28 August
1998
(5) United Airlines v. CIR [G.R. No. 178788.
September 29, 2010.]
b) Conclusion
(1) Are taxes really not debts?
(2) Is set-off really allowed? If so, when is it allowed?
7. No estoppel
a) Vera, et al. vs. Fernandez, et al., G.R. No. L-31364, March
30, 1979
b) Republic v. Ker & Co. Ltd., G.R. No. L-21609, 29
September 1966
c) China Banking Corporation v. CIR, G.R. No. 172509, 4
Feb 2015
d) CIR v. Kudos Metal Corp. GR No. 178087, 5 May 2010.
e) CIR v. San Roque Power Corp., GR No. 187485, 12 Feb
2013.
f) CIR v. Petron, GR No. 185568, 21 March 2012.
8. No solutio indebiti? (CIR vs. Acesite Hotel Corp, G.R. No.14795,
16 February 2007, 516 SCRA 93)
C. Scope of Taxation
1. Scope of Taxing Power
2. Is the power to tax the power to destroy? (Sison v. Ancheta, G.R.
No. 59431, 25 July 1984, 130 SCRA 654)
a) “The power to tax involves the power to destroy”- Chief
Justice Marshall
b) Justice Holmes: “The power to tax is not the power to
destroy while this Court sits”

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c) “So it is in the Philippines!”
d) Philippine Health Care v. CIR, G.R. No. 167330, 18
September 2009

e) Tridharma Marketing Corporation v. CTA and CIR. [G.R.


No. 215950. June 20, 2016.]

3. Conclusion

a) What is the test?

b) Treatment of the argument

c) Identifying the factors involving a “power to destroy”


argument

II. LIMITATIONS ON THE TAXING POWER


A. Inherent Limitations
1. Non-Delegability
a) Rationale
b) When taxation may not be delegated ***
c) When it may be delegated ***
(1) Requirements
(2) Smith, Bell v. Commissioner, L-28271, 25 July 1975
(3) Abakada v. Purisima, 562 SCRA 251
(4) Soriano v. Secretary of Finance, 24 January 2017,
[G.R. No. 184450. January 24, 2017.]
2. Public Purpose***
a) Concept
b) Test
(1) Planters Products Inc. vs. Fertiphil Corp., G.R. No.
1660006, 14 March 2008.
(2) Pascual v. Secretary of Public Works. 110 SCRA
148.
3. Situs ***
a) Concept
b) Protection as the basic consideration for situs of taxation

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(1) Secs. 85 & 104, NIRC
c) The power to fix situs is legislative
d) Universal Factors for determination of situs
e) Situs Rules
(1) Residence tax
(2) Property tax
(a) Real property tax
(b) Tax on personal property1
(i) Tangible property
(ii) Intangible property
(3) Excise tax
(a) Income tax
(b) Donor’s Tax
(c) Estate Tax
(d) Value-Added Tax
4. International Comity
a) Rationale
b) Concept
c) Commissioner of Internal Revenue v. Frank Robertson, et
al., G.R. Nos. L-70116-19, 12 August 1986.
d) CIR v. Gotamco & Sons, G.R. L-31092, 27 February 1987
e) CIR v. Mitsubishi, G.R. Nos. 54908 and 80041, 22 January
1990
f) Deutsche Bank AG Manila Branch v. CIR, G.R. No.
188550. August 28, 2013.
5. Exemption From Taxation of Government Agencies
a) Rationale
b) Rule
B. Constitutional Limitations
1. Preliminaries

CREBA v. Exec. Sec., G.R. No. 160756, 9 March 2010


2. Indirect Constitutional Limitations
a) Due Process (Art. III, Sec. 1, 1987 Constitution)
(1) Requirement of due process on tax laws
1 Reynaldo G. Geronimo, Bar Reviewer on Taxation-General Principles, slide 48

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(2) Main standard
(a) Lutz vs. Araneta. 98 Phil. 148
(b) Carlos Superdrug v. DSWD, G.R. No.
166494, 29 June 2007
(3) Is a retroactive tax law unconstitutional? (Testate
Estate of Fernandez v. Oasan Vda. De Fernandez, 99 Phil.
934)
(4) When is a tax law confiscatory?
(a) Churchill v. Rafferty, G.R. No. 10572, 21
December 1915
(b) Matalin Coconut v. Mun. Council of
Malabang, G.R. No. L-28138, 13 August 1986
(c) Carlos Superdrug v. DSWD, G.R. No.
166494, 29 June 2007
(d) Philippine Health Care Providers v. CIR ,
GR No. 167330, 18 September 2009.
(5) Due process and valuation
(a) Who’s better, Frank Chavez or JBL Reyes?
(i) Chavez v. Ongpin, G.R. No. 76778, 6
June 1990
(ii) Reyes v. Almanzor, G.R. Nos. 49839-
46, 26 April 1991 (196 SCRA 322)
(6) Due process and the presumption of validity of a tax
assessment
b) Equal Protection Clause (Art.III, Sec.1, 1987 Constitution)
***
(1) Concept
(2) Requisites for a Valid Classification
(3) Substantial distinction
(a) Sison v. Ancheta, 130 SCRA 654
(b) CREBA
(c) Manila Racehorse Trainers, 88 Phil. 60
(d) Association of Customs Brokers v.
Municipal Board of Manila, 93 Phil. 107
(4) “Germane to the purpose of the law” (Gomez v.
Palomar, 25 SCRA 827)
(5) Applicable to present and future conditions
(a) Ormoc Sugar Central
(b) Shell v. Vano, 94 Phil. 387

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(6) Geographic uniformity
c) Religious freedom (Art. III, Section 5, 1987 Consti.)*
(1) American Bible Society v. City of Manila, 101 Phil.
386
(2) Tolentino v. Sec. of Finance, 235 SCRA 630, citing
Jimmy Swaggart Ministries
(3) Sec. 30, NIRC
d) Non-impairment clause (Art. III, Sec. 10) **
(1) Rule
(2) Rationale
(3) Cases
(a) Tolentino v. Sec of Finance
(b) Philamlife v. Auditor General, 18 January
1968
(c) Casanovas v. Hord, GR No. 3473, 22 March
1907.
(d) CEPALCO vs. CIR, 25 September 1985;
Art. XII, Sec. 11, 1987 Constitution
(e) Mactan Cebu Int’l Airport Authority v.
Marcos, 261 SCRA 667
3. Direct Constitutional Limitations
a) Limitations on the authority imposing the tax
(1) Presidential veto (Art. VI, Sec. 27)
(a) General Rule: item veto is prohibited
(b) Exceptions
(c) “item” – CIR v. Manila Hotel and CTA,
[G.R. No. 83250. September 26, 1989.]
(2) Presidential pardon
(3) Flexible Tariff Clause (Art. VI Sec. 28[2])
(4) Local taxation
(a) Art. X Sec. 5, Sec. 6**
(b) Province of Batangas v. Romulo, 429 SCRA
81
(c) Mandanas v. Ochoa, [G.R. No. 199802.
July 3, 2018.]
(5) Power of the Supreme Court to review legality of
any tax, impost, assessment (Art. VIII, Sec. 5[2b])

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b) Limitations on the power to select the subjects of taxation
(1) Exemption of Charitable and Religious Institutions.
***
(a) Art. VI, Sec. 28(3)
(b) Coverage of exemption
(c) Lladoc v. Commissioner, 14 SCRA 292
(1965)
(d) Test of exemption
(i) Lung Center of the Philippines v.
Quezon City, 29 June 2004
(2) Non-Stock Non-Profit Educational Institutions
(Art. XIV, Sec. 4[3]) ***
(a) Coverage
(b) DOF Order No. 137-87
(c) Sec. 30, last paragraph
(d) CIR vs. YMCA, GR No. 124043, 14 October
1998
(e) CIR v. DLSU, [G.R. No. 196596. November
9, 2016.]
(f) La Sallian Educational Innovators
Foundation (De La Salles University – College of
St. Benilde) Inc. vs. Commissioner of Internal
Revenue, G.R. No. 202792. February 27, 2019
(3) How about the rule of non-diminution of salaries of
justices and judges? (Art. VIII, Sec. 10)
(a) Nitafan v. Commissioner, G.R. No. 78780,
July 23, 1987
(4) Passage of tax exemption law (Art. VI, Sec. 28[14)
c) Limitations meant to conform to social justice
(1) Progressive system of taxation (Art. VI Sec. 28[1];
Tolentino)
(2) Uniformity and equity of the rule of taxation (Art.
VI, Sec. 28[1]) ***
d) Limitations placed to prevent tyranny
(1) Appropriation, revenue, tariff bills to originate from
the House of Representatives (Art. III, Sec. 24)

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(a) “shall originate exclusively” (Tolentino)
(2) Non-imprisonment for non-payment of poll tax
(Art. III, Sec. 20)
e) Limitations on the collection and spending of tax money
(1) The need for an appropriation law
(2) Taxes levied for a special purpose (Art. VI, Sec.
29[3])
C. Double Taxation
1. Kinds
2. Direct Duplicate Taxation
a) City of Manila v. Coca-cola Bottlers (4 August 2009).
3. Indirect duplicate taxation
4. Legal tools to lessen the impact of double taxation
a) Deutsche Bank AG Manila Branch v. CIR, G.R. No.
188550. August 28, 2013.
5. Is double taxation a true limitation?
D. Principles of a Sound Taxing System
a) The Principles
(1) Fiscal adequacy
(2) Administrative feasibility
(3) Theoretical Justice
b) Nature of the Principles
c) Violation = Unconstitutionality or illegality?

E. Conclusion

III. TAX LAWS AND REGULATIONS


A. Tax Laws
1. Nature of tax laws
2. Canons of interpretation
a) Primary Rule: Construed against the government and in
favor of taxpayer
(1) CIR v. Ateneo, G.R. No. 31092, 18 April 1997

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b) Tax laws must be considered reasonably to carry out the
purpose of the tax law.
3. Tax laws operate prospectively
4. Tax laws are special laws
5. Publication requirement
6. American precedents
a) Mandatory or persuasive?
b) Doctrine of Equitable Recoupment (Collector vs.
University of Santo Tomas, 104 Phil. 1062)
B. Tax Regulations
1. Sec. 244, NIRC
C. BIR Rulings
1. Non-retroactivity of rulings
a) General Rule: Sec. 246
b) Exceptions: Sec. 246

IV. ESCAPING TAXATION2


A. Forms
B. Shifting
1. Definition
2. Impact of taxation
3. Incidence of taxation
4. Kinds of shifting
5. The right to shift in an indirect tax
a) Maceda v. Macaraig, G.R. No. 88291, 31 May 1991
b) Philippine Acetylene v. CIR, L-19707, 17 Aug. 1967
c) Silkair vs. CIR, G.R. No. 173594, 6 February 2008.
d) CIR v. American Rubber, L-10963. 30 April 1963.
e) CIR v. Gotamco & Sons, Inc., [G.R. No. L-31092.
February 27, 1987.]
C. Tax capitalization

2 H. S. De Leon and H.M. De Leon Jr., The Fundamentals of Taxation (2009 edn.), pp. 62-66.

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D. Transformation
E. Tax avoidance and Tax Evasion
1. Tax avoidance
2. Tax evasion
3. CIR vs. Estate of Benigno Toda, 438 SCRA 290
4. Estate planning
F. Tax Exemptions
1. Definition3
a) Do local governments have the power to exempt?
2. Rationale of Tax Exemption4
3. Grounds for Tax Exemption
4. Nature of Tax Exemption5
a) A mere personal privilege of the grantee
b) Revocable by the government (Art. XII, Sec. 2, 1987
Consti.)
5. Kinds of tax exemptions6
6. Construction of tax exemptions
a) General rule: Laws granting tax exemption are construed
strictissimi juris against the taxpayer.
(1) Compagnie Financiere Sucres Et Denrees v.
Commissioner of Internal Revenue, G.R. No. 133834, 28
August 2006
(2) Luzon Stevedoring Corp. vs. Court of Tax Appeals,
et al., G.R. No. L-30232, July 29, 1988
b) Exceptions
(1) Soriano v. Secretary of Finance, 24 January 2017,
[G.R. No. 184450. January 24, 2017.]
7. Tax exemption is personal to the grantee
a) Phil Acetylene
b) Gotamco
c) Maceda
d) Silk Air
G. Compromise and Amnesty

3 Benjamin B. Aban, Law of Taxation in the Philippines (rev. ed., 2001), citing 51 Am. Jur. 503, p. 118.

4 H. S. De Leon and H.M. De Leon Jr., The Fundamentals of Taxation (2009 edn.), pp. 72-73
5 Ibid., pp. 74-75
6 Dictionary of Terms and Phrases in Taxation, p. 117.

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1. Compromise
a) General requirements
b) NIRC taxes
c) Customs cases
d) LGC
2. Amnesty
a) Concept
b) Amnesty vs. Exemption

V. TAXPAYER’S SUIT
A. Definition
B. When available
1. Maceda
C. When not available
1. Gonzales v. Marcos, 65 SCRA 624

D. Araullo v. Aquino, G.R. No. 209287. July 1, 2014

INCOME TAXATION

I. OVERVIEW OF INCOME
TAXATION

A. Purposes of Income Tax

B. Income Tax Systems

1. Global (or unitary)

2. Schedular

3. Semi-schedular or semi-
global

C. Features of the Philippine


Income Tax Law

1. Direct tax

2. Progressive tax

3. Comprehensive system of
imposing income tax

Page 18 of 52
4. Semi-schedular or global tax
system

5. Of American origin

D. Criteria in Imposing
Philippine Income Tax

1. Source principle

2. Residence principle

3. Citizenship principle

II. INCOME

A. Definition of Income

1. Section 32, NIRC

2. There is an inflow of wealth


other than a mere return of capital. (Sec. 36, Revenue Regulation
2)

3. Jurisprudence

a. There is an increase in net worth (CTA v. Tours Specialist,


183 SCRA 402)

b. The taxpayer must have dominion over the increase in net


worth. (U.S. v. Sullivan; CTA v. Javier, 199 SCRA 824)

c. There is REALIZATION

1) Stock dividends (Eisner v. Macomber, 252 US 189)

2) Income is received when it is constructively paid.


Limpan v. Commissioner, 17 SCRA 703.

3) Tests applied to determine if income is “realized.”7

4. Recognition of income

a. Realization vs. recognition

B. Exclusions [Sec. 32 (B) ]***

1. Prefatory Discussion:

a. Nature of exclusions

b. Classification of exclusions/reasons for exclusion

2. Life Insurance Proceeds***

7 Reynaldo G. Geronimo, Bar Reviewer on Taxation-Income Tax, slides 11-12

Page 19 of 52
a. Rationale

b. Requirements

c. Tax consequence of proceeds received by a corporation


from a keyman insurance on the life of an executive

d. Tax consequence when the estate is the recipient

e. Effect of designation of beneficiary as revocable or


irrevocable

f. Tax consequence if the life insurance policy is transferred


for valuable consideration

g. Deductibility of premiums paid by a corporation over an


insurance policy given to its officer

3. Return of Premiums

a. When excludable

b. Tax consequence if the insured survives the policy and gets


a return of the premium;

c. Endowment policy

4. Gifts, bequests, devises, and


inheritance.

a. Policy

b. Requirement: Must come from pure or disinterested


generosity. (Duberstein)

c. When there is an employer-employee relationship

1) CIR v. Pirovano, 14 SCRA 832

d. When there is a business situation

1) Philamlife v. Secretary of Finance, GR No. 210987


24 November 2014.

5. Compensation for Injuries or


Sickness

a. Rationale

b. Damages

6. Income Required by a Treaty

Page 20 of 52
7. Retirement Benefits

a. Those received under RA 7641 (Retirement Pay Law)

8. Separation Pay

a. CAUSES: For death, sickness or other physical disability


or any cause beyond his control.

b. “beyond one’s control”

c. Voluntary Separation Program

d. Early retirement package (BIR Ruling No. 105-96, Oct. 15,


1996)

e. Retrenchment (BIR Ruling No. 130-87, May 14, 1987:


excludable)

f. Terminal leave benefits

1) If received by a government employee8

2) If received by a private employee

9. Retirement Gratuities from


Foreign Government Agencies and Other Institutions;

10. Payments to residents by the


USVA

11. Benefits received from the


SSS, GSIS

12. Miscellaneous Items

a. Income derived by a foreign government;

b. Income derived by the Gov’t and its political subdivisions;

c. Prizes and awards in recognition of religious, charitable,


scientific, educational, artistic, literary, or civic achievement;
(Prizes and awards)

1) Requisites

2) Prizes and awards in Sports Competitions (Athletic


achievements)

d. 13th month pay and other benefits, not exceeding P90,000


(as amended by the Train Law);

e. GSIS, SSS, Medicare contributions

8 Geronimo, General Principles, Slide 81; Reiterated in Commissioner v. Castaneda, 203 SCRA 72.

Page 21 of 52
f. gains from the sale of bonds, debentures, and other
certificates of indebtedness;

g. gains from the redemption of shares in mutual funds.

C. Taxable Period

1. Preliminaries9

2. Taxable periods

a. Calendar year

b. Fiscal year

c. Short period (Section 46)

3. Accounting methods

a. Introduction10

b. Accounting methods

1) Cash Method

2) Accrual method

a) Test

b) CIR vs. Isabela Cultural Corp., G.R. No.


172231, 12 February 2007

c. Doctrine of Constructive Receipt

1) When deemed received

2) Test

d. Installment Method

4. Payment

a. Self-assessed

b. Payment

1) General Rule: “Pay as you file”

2) Exception: “Pay as you go”

5. 2 kinds of withholding tax

a. Final withholding tax (FWT)

b. Creditable withholding tax

9 Citibank, N.A. vs. Court of Appeals, et al., G.R. No. 107434, October 10, 1997.

10 Consolidated Mines, Inc. vs. Court of Tax Appeals, G.R. Nos. L-18843 & 18844, August 29, 1974.

Page 22 of 52
c. FWT vs. CWT, CREBA v. Exec. Sec.

d. CWT and TRAIN Law

D. Section 42: “Source of


Income” Rules

1. Sources of income

2. “Source of income” rules

a. Interest

b. Dividends

c. Services

1) Test

2) Offline air carriers

a) BOAC case.11

b) South African Airways

3) International shipping line/air carriers

4) Pre-paid tickets

d. Sale of Real Property

e. Sale of Personal Property

f. Sale of shares of a domestic corporation

III. TAXPAYERS

A. Taxation of taxpayers
according to source of income

1. Resident citizen

2. Non-resident citizen

3. Resident alien

4. Non-resident alien engaged


in trade or business (NRAETB)

5. Non-resident alien not


engaged in trade or business

6. Domestic corporation

7. Foreign corporation

11 CIR v. BOAC, GR L-65773-74, April 30, 1987.

Page 23 of 52
B. Taxation of taxpayers
according to nature of income

1. For compensation income,


business income and professional income, and capital
gains/passive income not subject to final tax:

a. Individuals

b. Corporations

2. For capital gains subject to


final tax:

a. Individuals

b. Corporations

3. Passive income subject to


final tax

C. Taxpayers

1. Resident citizens (RCs)

a. “Residence”

b. Importance of Residence

c. Rationale

d. Section 22(e).

e. The RCs

1) Businessman/professional

2) Employee (compensation income)

3) Businessman/professional and derives


compensation (mixed income)

2. Non-resident citizen (NRC)

a. Who is an NRC?

b. Tax base

c. Tax rate

3. Resident alien (RA)

a. Who is an RA?

Page 24 of 52
b. Test

c. Tax base

d. Tax rate

4. Non-resident alien (NRA)

a. Who is a NRA?

b. The NRAs

c. Nonresident Alien Engaged in Trade or Business


(NRAETB)

1) Tax base

2) Tax Rate

3) Passive Income subject to final tax

d. Nonresident alien not engaged in trade or business


(NRANETB)

1) Who is a NRANETB

2) Tax base

3) Tax rate

4) 180 day rule

5. Domestic Corporation (DC)

a. Test

b. Tax base

c. Tax rate

6. Resident foreign corporation


(RFC)

a. Tax base

b. Tax rate

7. Nonresident foreign
corporation (NRFC)

a. tax base

Page 25 of 52
b. tax rate

IV. GROSS INCOME (SEC.


32)

A. Taxable Income

1. Taxable income (Sec. 31)

2. Income vs. Taxable Income

3. The term “taxable income”


now excludes personal and additional exemptions (as amended
by the Train Law)

B. “Gross Income”

1. Formula changed by TRAIN


Law

C. Kinds of Income Subject to


Tax

D. Compensation income

1. There must be an employer-


employee relationship.

2. Tax treatment of directors’


fees12

3. Subject to creditable
withholding tax on compensation.

4. Taxable Income

5. Tax treatment of certain


income

E. Professional income

1. Definition

2. Tax base or taxable income

F. Fringe benefits

G. Business income

1. Nature

12 RMC No. 34-2008; April 16, 2008.

Page 26 of 52
2. Individual carrying on a
business

3. Rental income

4. Sales or exchanges of real


property

H. Capital gains

1. Passive Income

2. Section 24 (c): from sale of


shares of stocks of a domestic corporation

a. Requisites

b. Rate of Capital Gains Tax (CGT) (now at 15%)

c. If listed and traded in the stock exchange (Sec. 127, NIRC,


as amended by TRAIN Law)

d. If the seller or transferor is a dealer in securities

3. Section 24 (d): Sale or


exchange of real property classified as capital asset situated in
the Philippines

a. Requirements

b. Rate

c. Sale or exchange

1) Exchange

2) Pacto de retro sales

3) Sale to the Government

d. Availability of 6% CGT to individuals

1) Citizens13

2) Aliens14

e. Corporations

1) Domestic Corporations15

2) FCs16

13 Sec. 24 (D)

14 Sec. 25 A (3) and Sec. 25(B)

15 Sec. 27 (D)(5)

16 Victorino C. Mamalateo, Philippine Income Tax (2010 edn.), p. 103.

Page 27 of 52
f. When the seller is a real estate dealer

g. When the seller is not a real estate dealer

h. If the property is outside the Philippines

i. Tax treatment of other capital assets

I. Passive Income

1. Rule

2. Interest

a. General Rule

b. Peso bank deposits

c. Interest from depository bank under the Foreign Currency


Deposit System (Sec. 24 (B[1])

1) Rate increased by Train Law

2) How about the dollar deposits of our OFWs.

d. Interest from long term deposit or investment

1) Individuals (Rev. Regulation No. 2-98)

2) Corporations

e. Interest on foreign loans extended by (paid to) NRFC’s

f. Interest on traditional loans extended by local banks and


other creditors

g. Interest on traditional loans is not subject to final or


expanded withholding tax.17

h. Bonds

3. Royalties

a. Royalties Paid by a DC

b. If paid by a FC

4. Dividends

17 1996 BIR Ruling No. 043-96.

Page 28 of 52
a. Rules if paid by a DC

b. “Inter-corporate dividends”

c. Stock dividends

1) General Rule: Eisner vs. Macomber

2) Exceptions:

d. Liquidating dividends

1) Treatment

2) Ordinary dividends distinguished from liquidating


dividends.

3) TEST 18

4) Tax treatment

a) Mamalateo

b) 2008 Revenue Regulations

5. Prizes and winnings

a. RULES:

1) PCSO and Lotto winnings (used to be exempt; now


taxable under the Train Law at 20% final tax if above P10,000)

2) RCSEAL awards

3) For athletic achievements

4) Other prizes

b. BIR Ruling

1) Espinosa-Rios fight in Cotabato

6. Share in the net profits of a


partnership subject to corporate tax

J. Other income

V. DEDUCTIONS (Sec. 34,


NIRC)

18 Wise & Co., Inc. vs. Meer, G.R. No. 48231, June 30, 1947

Page 29 of 52
A. Preliminaries

1. Rationale

2. Certain basic rules

3. Construction of tax
deductions

4. Burden of proof

5. A matter of legislative grace

6. Basic requirements

a. Time requirement

b. General Rule: must be business related.

7. Taxpayers entitled to
deductions

8. Taxpayers not entitled to


deductions

9. Classification

a. Current expense

b. Capital expenditures

10. 3 Types of deductions

a. Itemized Deductions

b. Optional standard deduction

c. Special deductions in Secs. 37 & 38, and in special laws

B. Itemized Deductions (Sec.


34)

1. Business Expenses

a. Requisites

1) Must be ordinary, necessary and reasonable

Page 30 of 52
2) Must be paid or incurred during the taxable year
(CIR v. Isabela Cultural Corporation)

3) It must be business related

4) It must be supported by adequate invoices or


receipts

5) Not contrary to law, morals, or public policy

6) The tax required to be withheld, if applicable, on


the amount paid or payable is shown to have been paid to the
BIR by the taxpayer, who is constituted as a withholding agent of
the government.

b. Certain Expenses

1) Compensation

2) Fringe benefits

3) Transportation/travel expense

4) Rentals

5) Advertising Expense

6) Political campaign expenses (Sec. 13, R.A. 7166)

7) Capital Expenditures

2. Interest

a. Requirements

1) Must be business-related.

2) There must be an indebtedness.

3) Interest must be one that is paid for the use of


money or for loans or indebtedness. (contractual debts)

4) There must be a legal liability to pay interest

5) There must be an interest stipulated.19

6) The indebtedness must be that of the taxpayer

19 Art. 1956, Civil Code.

Page 31 of 52
7) Must have been incurred or paid during the taxable
year

8) Must not be between related taxpayers.

9) Not incurred to finance petroleum operations

10) If incurred to acquire property used in business, the


property is not treated as a capital expense.

b. Tax Arbitrage

1) Definition20

2) Effect of tax arbitrage

3) Purpose of the law

c. Prohibited deductions

1) Sec 34 B-2 (a)

2) Interest on Preferred Shares21

d. Preferred stock vs. bonds22

3. Bad debts23

a. Requirements:

1) There must be a valid and subsisting debt. (Philex


Mining Corp. vs. Com’r, April 16, 2008)24

2) The debt must be business-related;

3) The debt must be ascertained to be worthless;

4) The debt must be fully charged off during the year.

b. Criteria for ascertaining worthlessness of debts.

c. Tax Benefit Rule

4. Taxes

a. Which component is deductible?

20 Reynaldo G. Geronimo, Bar Reviewer on Taxation, slide 67.


21 RMC 17-71, 12 July 1971.

22 Phil. Trust Co. vs. Collector CTA Case

23 Sec. 34 (E)

24 GR No. 148187, 551 SCRA 428

Page 32 of 52
b. Components not deductible

c. CIR v. Palanca25

5. Losses

a. Requirements

1) The loss must be actual;

2) The loss must be sustained in a closed and


completed transaction;

3) The loss must not be compensated for by insurance


or otherwise;

4) The loss must be liquidated and fully charged off


during the taxable year;

5) The loss must not be claimed as a deduction from


the gross estate;

6) If due to a casualty, the loss must be reported to the


BIR within 45 days from discovery of the loss

b. Embezzlement Cases

c. Net Operating Loss Carry-Over (NOLCO)

d. Losses Not Deductible by Reason of Relationship of The


Parties

e. Losses Not Deductible/Totally Deductible by Reason of


Public Policy

6. Sec. 34 (F): Depreciation

a. Basic Theory

b. Definition of “depreciation”26

c. The property must be used in business

d. The law does not authorize depreciation of an asset beyond


its acquisition cost.

e. Depreciation of building

f. Depreciation of Intangibles (Franchise, Trademark, Patent,


Formula, Secrets)

25 Commissioner of Internal Revenue vs. Carlos Palanca, Jr., G.R. No. L-16626, October 29, 1966

26 Basilan Estates, Inc. vs. Commissioner of Internal Revenue, et al., G.R. No. L-22492, September 5, 1967

Page 33 of 52
7. Sec. 34 (G) - Depletion of Oil
and Gas Wells and Mines

a. Burden of justifying the allowance of deduction based on


depletion (Sec. 34 [G])

b. “depletion” vs. “depreciation”.

8. Sec. 34 (H) - Charitable and


Other Contributions

a. Requirements

1) Contribution or gift must be actually paid;

2) The donee charitable organization must be of the


kind specified in the Tax Code;

3) No part of the net income of the donee charitable


organization inures to the benefit of any private stockholder or
individual.

b. Amount deductible

9. Sec. 34 (J) - Pension Trusts

a. Treatment of contributions to employee benefit pension


trusts

10. Research and development


expenses

a. Options of the taxpayer to recover expenditures for


Research and Development

b. Research and Development expenditures that may not be


amortized by the taxpayer

11. Premium payments on health


and/or hospital insurance

a. Deleted by TRAIN LAW

C. Special Deductions

1. Losses from wash sales or


securities

a. Definition of Wash Sale27

b. Requirements

27 Bryan A. Garner (ed.), Black’s Law Dictionary, 8th edn., p. 1366

Page 34 of 52
D. Optional Standard
Deduction (OSD)

1. Preliminaries

a. OSD vs. Itemized Deductions

b. Considerations in choice between itemized deductions and


OSD

2. Who are entitled

3. 40% of what?

4. The taxpayer must signify in


his return his intention to avail of OSD (RR 02-10 and RMC No.
16-10).

5. New provision inder Sec. 30


(L)

E. ITEMS NOT
DEDUCTIBLE FROM GROSS INCOME

1. Sec. 36(A): Items not


deductible from gross income

a. personal, living or family expenses;

b. Amounts paid out for new buildings or for permanent


improvements, or betterments made to increase the value of any
property or estate;

c. Amount expended in restoring property or in making good


the exhaustion thereof for which an allowance is or has been
made;

d. Premiums paid on any life insurance policy covering the


life of an officer or employee or any person interested in the
business of the taxpayer, when the taxpayer is directly or
indirectly the beneficiary under such policy;

e. Losses from sales or exchanges of property among certain


related persons [Sec. 36(B)]

2. Sec. 36(B): “Related Party”


Transactions

F. TAX CREDIT

1. Definition

2. Tax deduction vs. tax credit28

28 See CIR v. Luzon Drug Corp. (June 12, 2008).

Page 35 of 52
a. Tax credit v. tax deduction

b. Pilipinas Shell vs. CIR, 21 December 2007 (G.R. 172598)

3. Tax treatment of Senior


Citizen’s Discount

G. PERSONAL
EXEMPTIONS29

1. Preliminaries

a. Deleted by Train Law

b. Nature

c. Purpose

d. Rationale

2. Taxpayers entitled

3. Basic personal exemption

4. Additional exemption

5. “dependents”

6. Change of Status

VI. FRINGE BENEFITS


TAXATION

A. Coverage

1. Covered

2. Not covered

B. Tax treatment of fringe


benefits

1. Tax treatment

a. If received by a managerial or supervisory employee

b. If received by a rank and file employee

2. Said to be anti-poor and that


the law violates the rule that the income tax shall be based on
ability to pay.30

3. Fringe benefits not covered


by FBT

29 As amended by R.A. No. 9504 which took effect on July 6, 2008.

30 Victorino C. Mamalateo, Philippine Income Tax (1st edn., 2004), pp. 86-87.

Page 36 of 52
a. Those necessary to the business of the employer

b. Those for the convenience of the employer (employer’s


convenience rule)

c. De minimis benefits (RR 3-98)

d. New ceilings under RR 11-2018

4. Definition of Fringe benefit

5. Taxation of fringe benefits


received by a non-resident alien individual who is not engaged in
trade or business in the Philippines.

a. FBT rate of 25% (RR No. 11-2018)

b. How about the not-so-special-anymore aliens under the


TRAIN Law, what is the FBT rate?

6. Exempt RATA increased to


P90,000

VII. INDIVIDUAL INCOME


TAXATION

A. Overview

1. Schedular tax treatment

a. Cut-off is P250,000

2. Tax base

3. Tax Rate

4. Source

5. OSD

6. Progressive scheme of
taxation

B. Taxation of Resident
Citizens

1. Compensation earners

a. Entitlement to itemized deductions

1) Sec. 34 (M) deduction deleted under TRAIN Law

Page 37 of 52
b. Entitlement to personal exemptions

c. Tax rate/s (under the TRAIN Law)

1) If a pure compensation earner

2) If a mixed income-earner (RMC 50-2018)

d. Subject to fringe benefits taxation

e. Minimum wage earners (MWEs)

(1) Soriano v. Secretary of Finance, [G.R. No. 184450.


January 24, 2017.]

(2) TRAIN Law


2. Self – Employed

a. Income subject to final tax

b. Availability of itemized deductions/40% OSD

c. No more personal and additional exemptions

d. Self-employed has an option.

1) Optional 8% flat tax [New provision added by Train


Law [Sec. 24 (A)(2)(b)]

3. Availing the 8% tax rate


(RMC 50-2018)

a. Requirements

b. Tax base

c. Tax consequences

d. “Weighing your options”

4. Mixed income earners


(MIEs)

a. RMC 50-2018

b. MIEs vs. pure self-employed businessmen/professionals

C. Taxation of non-resident
citizens

Page 38 of 52
1. Tax base and tax rate/s

2. Sec. 24 (B[1]

D. Taxation of resident aliens

E. Taxation of NRAETBP

1. Taxed as a resident alien

2. Exceptions31

3. Availability of itemized
deductions and OSD

F. Taxation of NRANETBPs

1. Tax base and rate32

2. Availability of deductions

G. Capital Gains Subject to


Final Tax

1. 6% CGT and 5%/10% rule


applicable to all individuals

H. Entities treated as
individuals

1. Estates and trusts (infra)

I. OSD

VIII. CORPORATE TAXATION

A. Overview

1. “Corporation” includes
unregistered partnerships. (infra)

2. Global tax treatment

B. Domestic Corporations

1. Taxation

a. Source

b. Tax base

31 Hector S. De Leon and Hector M. De Leon, Jr., The Law on Income Taxation (13th edn., 2009), p. 325.

32 Ibid.

Page 39 of 52
c. Tax rate

2. Income of Domestic
Corporations subject to final tax

a. TRAIN changes

1) Dollar deposits

2) Capital gains tax on sale of shares not traded in the


stock exchange

3. DC’s with preferential tax


treatment

a. Proprietary educational institutions and non-profit hospitals


(Section 27 [B])

1) Predominance test

2) PEI’s vs. other educational institutions

CIR v. St. Luke’s, G. R. No. 195909, 26 September


2012

CIR v. St. Luke’s, GR No. 203514, 13 February


2017

b. Mutual life insurance co.

4. Government-owned &
controlled corporations

C. Resident Foreign
Corporations

1. Taxation

a. Source

b. Tax base

c. Tax rate

d. Not changed by TRAIN Law!

2. Test of nationality (domestic


or foreign)

3. Special RFC’s

Page 40 of 52
a. International Carriers

1) Rate

2) Offline Air carrier

b. OBUs and FCDUs vis-à-vis TRAIN Law

c. RAHQs and ROHQs vis-à-vis TRAIN Law

d. Branch of foreign corporations registered with PEZA,


SBMA, CDA, CJHDA, etc.

e. Qualified service contractor and subcontractor engaged in


petroleum operations in the Philippines.

4. Branch Profit Remittance*

a. Preliminaries

b. Definition

c. Rationale

d. Tax Base

e. Tax Rate

f. Requirement

g. Dual identity of branch

D. Non-resident foreign
corporations

1. Taxation

a. Source

b. Tax base

c. Tax rate

2. Dividends paid by domestic


corporations to non-resident corporations

3. Interest

4. Royalties

Page 41 of 52
5. Net capital gains realized
from sale of shares of stocks not traded in the stock exchange

6. 6% Capital Gains tax on sale


of real property?

E. Minimum Corporate
Income Tax

1. Preliminaries

a. Rationale (CREBA vs. Executive Secretary)

b. Purpose

c. Not violative of due process or the equal protection clause

2. Nature of MCIT

3. Coverage

4. Start of coverage33

5. Suspension of MCIT

6. Carry-forward provision

F. IMPROPERLY
ACCUMULATED EARNINGS TAX

1. Concept

a. The provision discourages tax avoidance through corporate


surplus accumulation.34

2. Rationale35

3. Nature

4. Presumption of unreasonable
accumulation

5. When justifiable

a. Reasonable needs of the business

1) “Immediacy Test”36

b. Instances of Accumulation for reasonable needs

6. Entities exempt from the tax

33 Manila Banking Corp. vs. Commissioner of Internal Revenue, G.R. No. 168118, August 28, 2006.

34 Cyanamid Philippines, Inc. vs. Court of Appeals, et al., G.R. No. 108067, January 20, 2000

35 Commissioner of Internal Revenue vs. Ayala Securities Corp., et al., G.R. No. L-29485, November 21, 1980

36 Manila Wine Merchants, Inc. vs. Commissioner of Internal Revenue, G.R. No. L-26145, February 20, 1984

Page 42 of 52
7. Coverage of IAET

8. IAET not a substitute for


dividend tax

G. COMPARATIVE
ANALYSIS

1. Tax base

2. Tax Rate

3. Situs

4. Source

5. Income subject to final tax37

6. Deductions

IX. TAXATION OF EXEMPT


CORPORATIONS

A. Exempt Corps.

1. Constitutionally exempt
corporations

2. Joint ventures for


construction projects and for energy projects

3. “Section 30”Corporations

4. General professional
partnerships

5. Tax-exempt corps under


special laws (cooperatives and foundations created for scientific
advancement)

6. PAGCOR v. BIR, G.R. No.


215427, December 10, 2014)

7. PAGCOR v. BIR, GR No.


212530, 10 August 2016

8. PCSO now taxable under the


Train Law

B. Section 30 Corporations

1. Primary Rule

37 Mamalateo says subject to 6% CGT but the Tax Code does not have a provision on CGT over real property when it comes to RFCs.

Page 43 of 52
2. Exempt Corporations

3. First paragraph, Sec. 30

4. Second paragraph, Sec. 30

5. NSNP educational
institutions are now included among tax-exempt corporations.

6. YMCA is exempt from


payment of property tax but not income tax on its property
rentals. 38

7. CIR v. St. Luke’s Medical


Center, Inc.

X. TAXATION OF
PARTNERSHIPS

A. Taxation of Unregistered
Partnerships

1. Subject to corporate tax

2. Basic partnership principles

a. Requisites of a partnership

b. Habituality

c. Sharing of gross returns

3. Co-ownership vs. Partnership

4. Cases

a. Duterte v. Rallos [G.R. No. 1147. September 24, 1903.]

b. Gatchalian v. Collector of Internal Revenue [G.R. No.


45425. April 29, 1939.]

c. Reyes v. CIR [G.R. No. L-24020-21. July 29, 1968.]

d. Evangelista v. CIR, 102 Phil 140

e. Pascual case [G.R. No. 78133. October 18, 1988.]

f. Obillos case [G.R. No. L-68118. October 29, 1985.]

g. Oña v. CIR [G.R. No. L-19342. May 25, 1972.]

38 Commissioner of Internal Revenue vs. Court of Appeals, et al., G.R. No. 124043, October 14, 1998

Page 44 of 52
B. Partnerships vis-à-vis Co-
ownership

1. Co-ownership is not a taxable


entity/corporation

2. The individual co-owners


report their share of the income in their individual tax returns.

3. Termination of co-ownership

C. General Professional
Partnerships ***

1. Income tax is imposed on the


partners, not on the professional partnership.

2. Definition: partnership
engaged in the exercise of a common profession no part of the
income of which is derived from trading or business;

3. GPP vs. taxable partnerships

4. NEW: For GPP situations,


OSD may be availed of only once

D. Joint Ventures

1. Tax treatment

2. Exempt joint venture

a. Requirements

b. Taxable events

XI. TAXATION OF ESTATES


AND TRUSTS

A. Treatment

B. Estates

1. Definition of estate

2. Requirements for the estate to


become a taxpayer

3. Tax treatment

a. General Rule: in the same manner as individuals

Page 45 of 52
b. Exceptions

1) P20,000 personal exemption finally deleted!

4. Who pays the estate tax

C. Trusts

1. Taxable trusts and tax


consequences

a. Accumulation trust

b. Current distribution trust

c. Discretionary trust

2. Trusts that are not taxable

a. Grantor trusts

b. Employees’ trust

3. Multiple trusts

XII. GAINS AND LOSSES


FROM DISPOSITIONS OF PROPERTY

A. PRELIMINARIES

B. COMPUTATION OF
GAIN/LOSS

1. Basic formula

a. For GAIN

b. For LOSS

2. Formula in case of exchange

3. Tax consequence of exchange


of properties of LIKE kind

C. FACTORS IN
DETERMINING GAIN OR LOSS

D. BASIS

1. Meaning of basis

2. Determination of basis

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a. If the property is acquired by purchase

b. If the property is acquired for free

1) If acquired by inheritance.

2) If the property is acquired by GIFT.

3. Basis for transactions with


preferential treatment

a. Tax consequence if the property is a capital asset which is


real property and is situated in the Philippines.

b. Tax consequence if it’s shares of stocks in a DC

c. If the stocks are those of a FC

E. CAPITAL ASSETS vs.


ORDINARY ASSETS

1. What are capital assets?


(Section 39, NIRC)

a. The statutory definition of capital assets is negative in


nature. 39

2. Ordinary assets

a. Stocks in trade or those in the inventory (e.g. merchandise


inventory)

b. Those held primarily for sale to customers in the ordinary


course of business (e.g., subdivision lots held for sale by
subdivision owner)

c. Property used in trade or business AND subj to


depreciation (office equipment, building)

d. Real Property used in business (land used in the operation


of the business)

3. RULE OF THUMB:

4. Examples of CA’s

5. Tests

a. Liquidating rule/theory

1) Exception: Calasanz case

39 Calasanz vs. Commissioner of Internal Revenue, G.R. No. L-26284, October 9, 1986.

Page 47 of 52
b. PURPOSE of acquisition

6. Importance of distinction
between capital and ordinary assets

7. SMI-ED Philippine
Technology, Inc. .v. CIR, G.R. No. 175410, November 12, 2014

F. CAPITAL GAINS AND


LOSSES**

1. Types of Capital Assets

2. “The 3 Golden Rules/Holy


Trinity”

a. Percentage or Holding Period Rule

b. Loss limitation rule

c. Net loss carry over rule

3. Tax consequence if the


capital asset involved is real property

4. Tax consequence if the


capital asset is shares of stocks

5. Specific capital asset


transactions

a. Section 24(c)/Section 24(d)

b. Capital Asset Transactions deemed by law as such

1) Retirement of Bonds (Sec 39 [E])

2) Distribution of liquidating dividends. (Sec. 256)

3) Gains from failure to exercise option. (Sec. 39F)

4) Sec. 34(D) (4) (b) - Securities becoming worthless

G. TAX-FREE EXCHANGES

1. Preliminaries

a. Rationale

b. Corporate readjustments or reorganizations

2. Tax-free exchanges

a. Statutory merger/consolidation

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b. De facto merger

c. But what if there’s a “boot”?

XIII. FILING OF INCOME TAX


RETURNS

A. ITRs covering ordinary


income, profits and gains

1. ITRs covering ordinary


income, profits and gains

a. Individuals required to file ITR (General Rule)40

b. Individuals not required to file ITR41 as amended by Train


Law

c. Husband and wife

1) Sec. 51(D)

2) Sec. 24(A)

3) (Sec. 51 (D)

2. Domestic corp and resident


foreign corp

B. Capital Gains Tax Returns

1. Sale of unlisted shares

2. Sale of real property that is


capital asset

C. Passive Investment Income


Subject to Final Tax

XIV. PAYMENT OF INCOME


TAX

A. When paid

1. General Rule: “Pay-as-you-


file” rule

2. Exceptions

XV. WITHHOLDING TAXES

A. Sec. 57 - Withholding of
Tax at Source

40 Sec. 51(A)(1)

41 Sec. 51(A)(2)

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1. Reasons for devising the
withholding tax system.42

2. The withholding agent is the


agent of both the Government and the taxpayer.

3. Withholding agent has


implied authority to file a claim for refund.43

4. Sec. 58 - Returns and


Payment of Taxes Withheld at Source

5. New provision added to Sec.


57 (B)

42 . Citibank, N.A. vs. Court of Appeals, et al., G.R. No. 107434, October 10, 1997

43 Commissioner of Internal Revenue vs. Procter & Gamble Philippine Mfg. Corp., G.R. No. 66838, December 2, 1991

Page 50 of 52
Week Topic/s References
1 Part I: Power of Taxation Recalde, De Leon, Vitug,
Part II: Limitations Aban, Geronimo,
(refer above) Mamalateo, 1987
Constitution, CTA Law
& National Internal
Revenue Code
2 Parts II & III: Limitations and Tax Recalde, De Leon, Vitug,
Laws Aban, Geronimo,
(refer above) Mamalateo, 1987
Constitution, CTA Law
& National Internal
Revenue Code
3 Parts IV & V Escape from Taxation Recalde, De Leon, Vitug,
Taxpayer’s Suit, Aban, Geronimo,
Preliminaries in Income Taxation Mamalateo, 1987
Income Constitution, CTA Law
(refer above) & National Internal
Revenue Code
4 Exclusions Recalde, De Leon, Vitug,
Taxpayers Aban, Geronimo,
Source of Income Mamalateo, 1987
Preliminary Examination Constitution, CTA Law &
National Internal Revenue
Code
5-8 Gross Income Recalde, De Leon,
Taxable Income Geronimo, Mamalateo,
Deductions Train Law & National
(refer above) Internal Revenue Code
9 Fringe Benefits Tax Recalde, De Leon, Aban,
Vitug, Geronimo,
Midterm Examination Mamalateo, Train Law &
National Internal Revenue
Code
10-13 Individual Income Taxation Recalde, De Leon,
Corporate Taxation Geronimo, Mamalateo,
(refer above) Train Law & National
Internal Revenue Code
14 Exempt Corporations, Partnerships, Recalde, De Leon, Aban,
Estates, and Trusts Vitug, Geronimo,
Mamalateo, Train Law &
Semifinal Examination National Internal Revenue
Code
(refer above)
15-17 Gains & Losses from Dispositions of Recalde, De Leon,
Property, Tax-free Exchanges, Filing Geronimo, Mamalateo,
of ITR, Payment, and Withholding Train Law & National
(refer above) Internal Revenue Code
18 Review Recalde, De Leon, Aban,
Vitug, Geronimo,
Final Examination Mamalateo, Train Law &
National Internal Revenue
Code

Prepared by:

____________________

Page 51 of 52
Atty. Edwin D. Malabanan
Part-time Professor
Date Signed:

Reviewed and Approved by:

____________________
Atty. Edgard E. Valdez
Dean, College of Law
Date Signed

Page 52 of 52