Income Taxation

SYLLABUS
Tax 1: Income Taxation

Professor Serafin U. Salvador, Jr. August 2019

Course Requirements:
Class Participation: Attendance, Recitation, and Reporting
Final Exam: Departmental MCQ and Essay

PART I
A. INTRODUCTION

1. General Principles – Sources of Tax Laws (Section 21, NIRC) as amended by RA 10963
effective Jan. 1, 2018

2. Constitution / Inherent limitations (Sison vs. Commissioner, GR L-59431 July 25, 1984)

3. History of the Philippine Income Tax Law – definition /distinctions

4. Classification of income taxpayers

5. Rev. Reg. No. 8-2018; RR 11-2018 (Income Tax Regulations & Expanded Withholding Tax
Implementing RA 10963)

B. TAX ON INDIVIDUALS

1. Kinds of Individual Taxpayers (Sec. 24 and 25, NIRC)

2. Definition of each kind of taxpayer (Sec. 22)

3. Kinds of Income and Income Tax of Individuals

a. Tax Formula

b. Final Income Tax – Interests, dividends, royalties, awards, capital gains on sale of
shares, realty (Revenue Regulation (RR) 10-98, RR 8-98, Aug. 25, 1998)

c. Resident Citizens and Resident Aliens (Sec. 5 and 6 RR 2-401; RR 2-98, Apr. 17, 1998)

d. Non Resident Citizens (RR 1-79 and RR 9-99, Apr. 19, 1999 – definition and
requirements for information return)

e. Non Resident Aliens Engaged in Business in the Philippines

1
Henceforth, RR 2

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f. i. SC nullified certain provisions of RR No. 10-2008 for adding conditions and

requisites to exemptions not mentioned in the law; exemptions are applicable for
the full taxable year and not only counted from date of effectivity – Soriano vs. Sec.
of Finance, G.R. No. 184550, Jan. 24, 2017

g. Senior Citizen Law, RA 7432, as amended by RA 9257 and implemented by RR 4-

2006 (Dec. 2, 2006) and RR 1-2007 (Dec. 22, 2006)

i. Constitutionality of Expanded Senior Citizen Act of 2003, as amended by RA

9994 (Expanded Senior Citizen Act of 2010) implemented by RR 8-2010,
(Sept. 3, 2010) - Carlos Superdrug Corp vs. DSWD, G.R. No. 166494, Jun. 29,
2007

h. RA No. 10963, Jan. 1, 2018, Increased exclusion to P90,000 for 13th month pay &
other incentive benefits

C. Attrition Act of 2005 (RA 9355) Constitutionality questioned in Abakada Guro vs. Honorable
Cesar Purisima (GR No. 166715, Aug. 14, 2008)

PART II

D. TAX ON CORPORATIONS

1. Definition of Corporations

a. Sec 22:
b. Commissioner vs. Batangas Tayabas Bus. Co. & Laguna Tayabas Bus Company, G. R.
No. L-9692, Jan. 06, 1958
c. Oña vs. Commissioner, G.R. No. L-19342, May 25, 1972
d. BIR Ruling 317-92 (Oct. 28, 1992)
e. Obilles vs. CIR, L-681185, Oct. 29, 1985
f. RR 10-2012 (Jun. 2, 2012), Exempt Joint Venture for Construction Projects

2. Classification of Corporations and Taxes

a. In general (Section 27-28) as amended by RA 9337, effective July 1, 2005,

implemented by RR 16-2005 (November 1, 2005), increase to 35% Corporate
Income Tax; reduced to 30% beginning Jan. 1, 2009

i. Domestic
ii. Resident
iii. Non-Resident

b. Special Corporations

i. Private Educational Institutions and Non-Profit Hospitals

a. Constitution, Article XIV Section 4 (3)

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b. Finance Department Order 137-87

c. Department Order 149-95, Nov. 24, 2995: Non-profit/ Non Stock

Educational Institutions regarding exemption of interest from deposits
and deposit substitute

d. CIR vs. St. Luke’s Medical Center, G.R. No. 195909, Sept. 26, 2012 (Non-
Profit Hospitals Taxed at 10%); G.R. No. 203514, Feb. 13, 2017

e. CIR vs. DLSU, Inc. G.R. No. 196596, Nov. 9, 2016

f. PAGCOR vs. BIR, G.R. No. 172087, March 1, 2011

See also PAGCOR vs. BIR, G.R. No. 215427, Dec. 10, 2014 and Bloombery
Resorts and Hotels, Inc. vs. BIR, G.R. No. 212530, Aug. 10, 2016

ii. Non – Resident Cinematographic Film Owner, Lessor or Distributor

iii. International Carriers:

a. Commissioner vs. BOAC, G.R. No. L-65773-74, Apr.30, 1987

b. RR 15-2002, May 20, 2002, implements gross Philippine Billings Tax on

International Carriers

c. Air Canada vs. CIR, G.R. No. 169507, January 11, 2016

d. United Airline Inc. vs. CIR G.R. No. 178788, Sept. 29, 2010

e. South African Airways vs. CIR GR. No. 180356, February 16, 2010

f. See RA 10378, July 23, 2012 (Reciprocal Exemption for GPB Tax) as
implemented by RR 15-2013 (Sept. 20, 2013)

iv. Non Resident Owner of Vessels

v. Non Resident Lessor of Aircraft, Machineries, and other Equipment

vi. Foreign Currency Deposit System / Offshore Banking Units

a. RR 10-76 (implements PD 1035) as amended by RR 14-77

b. RR 10-98 (Aug. 25, 1998)

c. RA 9294 – Restores Tax Exemption of OBU’s and FCDU’s (approved April

28, 2004, effective May 21, 2004)

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vii. Petroleum Service Contractor and Sub Contractor (PD 1334, PD 87)

viii. Enterprises Registered under Bases Convention and Development Act of 1992
and Philippine Economic Zone Act of 1995

a. Clarification of coverage of 5% Preferential Rate by RR 20-2002 (Oct. 14,

2002), as amended by RR 2-2005 (Feb. 8, 2005) amending RR 1-95 and RR
16-99 and further amended by RRs 11, 12, 13-2005 (June 23, 2005)

ix. John Hay People’s Alternative Coalition vs. Victor Lim, G.R. No. 119775, Oct. 14,
2003 and Mar. 29, 2005

x. Clark Development Tax Exemption:

a. Coconut Oil Refiner’s Association, et. Al v. Ruben Torres, BCDA, et. Al.,
GR No. 132527, July 29, 2005

xi. RA 9400, Restores Privileges to Clark and John Hay; RA 9399 Grants Tax Amnesty
to locators of Clark and John Hay

3. Kinds of Taxes (Domestic, Resident, Non-Resident)

a. Final Income Tax

b. Income Tax at the end of the year, quarterly income tax

i. CIR vs. Procter and Gamble, G.R. No. 66838, Apr. 15, 1988, and en banc
reconsideration G.R. No. 66838, Dec. 2, 1991

ii. CIR vs. Wander Philippines, G.R. No. 68375, April 15, 1988

4. Branch Profit Remittance Tax – Revised Memo Circular 55-80; Sec. 28 (A)[5], NIRC

5. Minimum Corporate Income Tax - Sec. 27 (e) and 28 (A)[2], NIRC; RR 9-98 (Aug. 25,
1998)

6. Improperly Accumulated Earnings Tax

a. Sec. 29, RR 2-2001 (Mar. 9, 2001)

b. Formula: Revenue Memorandum Circular (RMC) 35-2011 (Mar. 14, 2011)

c. Greenhills Properties, Inc. v Commissioner, CTA Case No. 8295, May 15, 2015

d. Cyanamid Philippines, Inc. vs. CA, G.R. No. 108067, Jan. 20, 2000

e. Cebu Air, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9106, Jan. 11,
2018 (definition of publicly held corporation and tax base of surtax)

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7. Fringe Benefits Tax

a. Sec. 33, NIRC & RR 3-98 (May 21, 1998), amended by RR 8- 2000, Nov. 22, 2000; RR
10-2000, December 29, 2000 regarding de minimis benefits, ACA, RATA, and PERA2)

b. As amended by RR 5-2008 (April 17, 2008, increases rice subsidy to P1,500 per
month, clothing allowance to P4,000), as amended by RR 5-2011 (monetized leaves
& RR 8-2012 (increasing clothing allowance to P5,000)

c. RR 1-2015, Jan. 5, 2015, Exempt from withholding tax on compensation income &
FBT under CBA & productivity incentive scheme of P10,000

PART III

E. TAX ON CORPORATIONS (Section 28)

1. The Taxpayer
2. Exemption from Tax (Section 30)

F. EXEMPT ENTITIES – GENERAL PRACTICE – EXEMPTION STRICTLY CONSTRUED

1. Co-ownership

a. Obillos, Jr. vs. Commissioner, G.R. No. L-68118, Oct. 29. 1985

b. Gatchalian v Collector, G.R. No. 45425, Apr. 29, 1939

2. Corporations (Sec. 30, NIRC)

a. Sec. 23-35, RR 2

b. CIR v V.G. Sinco Educational Corporation, G.R. No. L-9276, Oct. 23, 1956

Revenue Memorandum Order (RMO) No. 20-2013 (July 22, 2013); RMC 28-2013 (Apr. 1,
2013); RMC 34-2014 (May 8, 2014); RMC 51-2014 (June 6, 2014); RMC 64-2016 (Jun. 20,
2016) Inurement Prohibition

3. RP – US Income Tax Treaty (Signed October 1, 1976, effective January 1, 1983)

4. Omnibus Investment Code – Income Tax Holiday Incentive, as amended by EO 226

5. Special Economic Zone Act of 1995 (RA 7916) and Bases Conversion and Development
Act (RA 7227, as amended)

2
Additional Compensation Allowance, Representation and Transportation Allowance, and Personal Economic
Relief Allowance

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6. CIR vs. CA, CTA, & YMCA, G.R. No. 124043, Oct.14, 1998

7. Jewellery Industry Development Act of 1998 (RA 8502) as implemented by RR 1-99, (Jan.
6, 1999)

8. Cooperative Code of the Philippines (RA 6983), as implemented by RR 20-2001, (Nov.

12, 2001)

9. RA 9178, Barangay Micro Business Enterprises (BMBEs), Implemented by Department

Order 17-04, April 20, 2004

10. Tourism Act of 2009 (RA 9593, June 2009) as implemented by RR 7-2016 (Nov. 18, 2016)

G. INCLUSIONS AND EXCLUSIONS FROM GROSS INCOME (Sec. 32, NIRC; Sec. 39-60, RR 2)

1. Definition of Gross Income

2. Exclusions from Gross Income

a. Sec. 61-64, RR 2

b. RA 4917

c. RA 7641 – An Act Granting Retirement Benefits to Private Sector Employees in

Absence of Qualified Plan

3. Exclusion of 13th Month Pay

a. RA 7833, January 1994

b. RR 2-95

c. RMC 36-94 (Dec. 14, 1994)

d. RR 2-98

e. RA 7459 – Inventors and Inventions Incentives Act of the Philippines

f. RA 10653 – Exclusion of 13th month pay (P82,000) as implemented by RR 3-2015

(Mar. 13, 2015), as amended by RA 10963 (P90,000)

4. Exemption of Minimum Wage Earners

a. RA 9504, July 6, 2008

b. RR 10-2008, Sept 25, 2008

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c. See also Soriano vs. Sec. of Finance, G.R. No. 184550, Jan. 24, 2017

H. ITEMS OF GROSS INCOME (Sec. 32, NIRC)

1. Compensation for Personal Service

a. In Money

b. In Kind

i. “Convenience of the Employer” Rule – Henderson vs. Collector, G.R. No. L-

12954, Feb. 28, 1961
ii. RR 2-98 and RR 3-98

I. INTEREST INCOME

1. Taxable

2. Not Taxable

3. Imputed Interest in Inter Company Loans / Advances (Sec. 59, NIRC; RMO 63-99, July
1999)

4. See CIR vs. Filinvest, G.R. No. 163653 & 167689, July 19, 2011 - “No imputation of
interest on intercompany advances”

J. INCOME UNDER LEASE AGREEMENT (Sec. 49, RR 2)

1. Rent

2. Obligation of Lessor to Third Parties Assumed and Paid by Lessee

3. Advance Rental

4. Leasehold Improvements – Options to Report Income for Right of Reversion of

Improvements to Lessor:

a. Option 1 – Report Fair Market Value Upon Completion

b. Option 2 – Report Over Remaining Life of Lease Depreciated Value after Expiration
of Lease Period

PART IV

K. DIVIDEND INCOME (Sec. 73, NIRC; Sec. 250-256, RR 2)

1. Kinds of Dividends Recognized in Law

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a. Cash

b. Property (BIR Ruling 108-93, May 7, 1993)

c. Stock
i. CIR vs. Manning, G.R. No. L-28398, Aug. 6, 1975, 66 SCRA 14
ii. Fisher vs. Trinidad, G.R. No. 17518, Oct. 30, 1922, 43 Phil 973

2. Measure of Income in Cash and Property Dividend

3. Stock Dividend

a. When Taxable

i. Measure of Income

b. When Not Taxable

4. Liquidating “Dividend”

a. BIR Ruling 322-87, October 19, 1987; Sec. 8, RR 06-2008, taxed at ordinary rates.

b. Wise & Co., Incorporated vs. Meer GR No. L-48321, June 30, 1947

c. See also CIR vs. Goodyear Philippines, Inc., G.R. No. 216130, Aug. 3, 2016 (citing
Wise case with approval)

d. Fernando vs. Spouses Lim (Liquidating dividend not taxable to Corp. but on part of
shareholder (but see CIR vs. Prime Leisure Corp.)

5. “Essentially Equivalent to Distribution of Taxable Dividends”

a. CIR vs. CA & CTA & Anscor, GR No. 108576, Jan. 20, 1999

L. INCOME FROM ANY SOURCE WHATEVER

1. Bad Debt Recovery (Sec. 50, RR 2)

2. Forgiveness of Indebtedness (Sec. 50, RR 2) - CIR vs. Goodyear Philippines, Inc., G.R. No.
216130, Aug. 3, 2016
3. Tax Refunds (RMC 13-80, April 10, 1980)
4. Damage Recovery
5. Prizes and Winnings
6. Income from any Source whatever – Gutierrez vs. Collector, G.R. Nos. L-9738 & L-9771,
May 31, 1957, 101 Phil 743

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L. TRANSFER PRICING REGULATIONS

RR 2-2013 (Jan. 23, 2013), Adopts the arm’s length pricing principle under Sec. 50, NIRC
using the arm’s length pricing methodologies:

1. Comparable Uncontrolled Price Method (“CUP”)

2. Resale Price Method (“RPM”)

3. Cost-Plus Method (“CPM”)

4. Profit Split Method (“PSM”)

5. Transactions Net Margin Method (“TNMM”)

DEDUCTIONS

A. CLASSES OF DEDUCTIONS (Sec. 34, NIRC)

1. Optional Standard Deduction for Individuals and Corporations

2. RA 9504 (July 6, 2008) implemented by RR 16-2008 (Nov. 26, 2008) initial year of
implementation

3. Itemized Deductions

B. EXPENSES IN GENERAL (Sec. 65-76, RR2)

1. Requisites for Deductibility

a. Ordinary and Necessary

b. Visayan Cebu Terminal Co vs. Collector, CTA Case 128, June 29, 1957 affirmed by
G.R. No. L-12798, May 30, 1960 108 Phil 320

c. CIR vs. General Foods (Phils.) Inc., G.R. No. 143672, Apr. 24, 2003

2. Compensation for Personal Services

a. Kuenzle & Streif, Inc. v. CIR, G.R. No. L-12010 & L-12113, Oct. 20, 1959

3. Traveling / Transportation Expenses (RR 3-98)

4. Cost of Materials (Sec. 67, RR 2)

5. Repairs (Sec. 68, RR 2)

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6. Expenses under Lease Agreements (Sec. 74, RR 2)

7. Expenses for Professionals (Sec. 69, RR 2)

8. Expenses for Farmers (Sec. 75, RR 2)

9. Entertainment Expenses (RR 3-98)

10. Expenses for Private Educational Institutions

11. Alhambra Cigar and Cigarette Manufacturing, Co. vs. Collector, G.R. No. L-12026, May
29, 1959

12. Expense for Police Protection is Illegal – Calanoc vs. Collector, G.R. No. L-15922, Nov. 29,
1961

13. Constructive Dividends (Sec. 70, RR 2)

14. Ceiling for Entertainment, Amusement and Recreational Expenses (RR 10-2002, July 10,
2002)

15. Types of Advertising Expenses:

a. Expenses for Current Sale (Deductible)

b. Expenses for Future Sale (To be amortized)

c. See also: CIR vs. General Foods, GR No L- 143672, Apr. 24, 2003

PART V

C. INTEREST

1. Interest Deductible from Gross Income

2. Interest not Deductible from Gross Income

3. Prepaid Interest of Individual on Cash Method of Accounting

a. Commissioner vs. Vda de Prieto, GR No. L-13912, Sept.30, 1960, 109 Phil 592

4. Reduction of Interest Expense on Interest Income subjected to Final Tax under TRA of
1997

5. Requirement for deductibility of interest expense - RR 13-2000 (Nov. 20, 2000)

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D. TAXES (Sec. 80-82, RR 2)

1. Deductible from Gross Income

2. Not Deductible from Gross Income

3. Meaning of the term “Taxes”

4. Tax Credits vs. Tax Deduction

a. CIR vs. Lednicky, et al., G.R. No. L-18169, July 31, 1964

b. Discounts or Tax Credits –

i. CIR vs. Bicolandia Drug Corp, G.R. No. 148083, July 21, 2006
ii. Mercury Drug Corporation vs. CIR, G.R. No. 164050, July 20, 2011

5. Fines and Penalties

a. Gutierrez vs. Collector, G.R. No. L-19537, May 20, 1965, 14 SCRA 33

E. LOSSES (Sec. 93-101, RR 2)

1. Kinds of Taxpayers and their losses

2. Completed transactions

a. Fernandez Hermanos vs. CIR, G.R. No. L-21557, Sept. 30, 1969, 29 SCRA 552

3. Special Rules on Losses

a. Voluntary Removal of Buildings (Sec. 97, RR2)

b. Loss of Useful Value of Assets (Sec. 98, RR2)

c. Shrinkage in Value of Stocks (Sec. 99, RR2)

4. Wagering Losses

5. Substantiation of Losses, RR 12-77

6. Foreign Exchange Losses, BIR Ruling 144-85 (Aug. 26, 1985)

a. Inter-Bank Guiding Rate, RMC 26-85 (July 15, 1985)

7. Abandonment Losses

8. Net-operating Loss Carry-Over -Implemented by RR 14-2001 (Aug. 27, 2001)

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a. Three-Year Period

b. No Substantial Change in Ownership (75% Rule)

c. BIR Ruling No. 214-2012 (Mar. 28, 2012)

F. BAD DEBTS (Sec. 102-104, RR 2)

1. Requirement for Deductibility – Collector vs. Goodrich, G.R. No. L-22265, Dec. 22, 1967,
21 SCRA 1336

2. Tax Benefit Rule – RR 5-99 (March 10, 1999) as amended by RR 25-2002 (Dec. 16, 2002)

3. Bad Debts between Related Parties - Section 30[b], NIRC

4. Requirements for Deductibility of Bad Debts Including Banks – RR 5-99 (Mar. 10, 1999)
as amended by RR 25-2002 (Dec. 16, 2002)

5. Debt or Equity – Philex Mining vs. CIR, G.R. No. 148187, April 16, 2008

G. DEPRECIATION (Sec. 105-115, RR 2)

1. Depreciation Base – Zamora vs. Collector, G.R. Nos. 15290, May 31, 1963, 8 SCRA 163

2. Methods of Depreciation

a. Straight Line
b. Declining Balance
c. Sum of the Digits

3. Depreciation Rates

i. Bulletin “F”
ii. RR 19-86, Annex “A”

4. RR 12-2012 (Oct. 17, 2012), Limitations on depreciation deduction on motor vehicles for
land transport not exceeding P2.4 million

H. DEPLETION (RR 5-76, Apr. 2, 1976)

I. PENSION TRUST (Sec. 118, RR2)

1. Two Kinds of Deductions for Employer

2. RA 9505, Personal Equity / Retirement Fund Act of 2008 (PERA)

3. RR 17-2011 (Effective Jan. 1, 2012) as amended by RR 10-2016 (Dec. 27, 2016)

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J. CHARITABLE AND OTHER CONTRIBUTIONS (BIR-NEDA Regs. 1-82)

1. Fully Deductible

2. Deductible, Subject to Limitations

a. Corporation

b. Individuals

3. “Deductibility by Actually Paid or Made to Accredited Donee Institution”

RR 13-98 (Dec. 8, 1988), implementing Section 34(H), RA 8424

K. RESEARCH AND DEVELOPMENT EXPENSES (Sec. 34, NIRC)

a. When Paid or Incurred

b. Amortized for 60 months

L. IMPOSITION OF CEILINGS ON DEDUCTIONS BY THE SECRETARY OF FINANCE

Sec. 34, last paragraph, NIRC

M. ADDITIONAL REQUIREMENT FOR DEDUCTIBILITY

Sec. 34 [k], NIRC; RMO 38-83 (Nov. 14, 1983, on Deficiency Withholding as amended by RR
2-98 and RR 12-2013, Jul. 12, 2013)

RR 6-2018 revokes RR 12-2013 allows deductibility of expenses where WT were paid at time
of audit/investigation

N. ITEMS NOT DEDUCTIBLE (Sec. 36, NIRC; Sec. 119-122, RR 2)

Atlas Consolidated vs. CIR, G.R. No. L- 26911, Jan. 27, 1981

PART VI
SALE OR EXCHANGE OF PROPERTY

A. CAPITAL ASSETS (Sec. 39, NIRC; Sec. 132-155, RR 2)

1. Definition of Capital Asset (RR 7- 2003, Feb. 11, 2003)

Guidelines in Determining whether a real property is capital or ordinary asset

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2. Definition of Ordinary Income

a. Sec. 22 (Z), NIRC

b. Calasanz vs. CIR, G.R. No. L-26284, October 10, 1986

3. Net Capital Gain, Net Capital loss

4. Ordinary Loss

5. Percentage Taken into account (Long Term – Short Term) by Taxpayers other than a
Corporation

6. Limitation on capital loss

B. DETERMINATION OF GAIN OR LOSS FROM TRANSFER OF PROPERTY (Sec. 40, NIRC; Sec.
136-143, RR 2)

1. Computation of Gain or Loss – CIR vs. Aquafresh Seafood, Inc., G.R. No. 170389, Oct. 20,
2010

2. Cost or basis for income tax purposes

3. Exchange of Property – Tax – Free Exchange

a. Merger or Consolidation –

BIR Ruling 383-387 (Nov. 25, 1987)

Commissioner vs. Vicente Rufino G.R. No. L-33665-68, Feb. 27, 1987

b. Transfer of “Substantially All” the assets (Sec. 143-A(6), RR 2)

c. Transfer of Property for Shares of Stocks

Revenue Memorandum Rulings (RMR) 1-2001 dated November 29. 2001,

prescribing the new conditions and requirements of tax-free exchange

d. De facto merger, RMR 1-2002, April 25, 2002 on tax consequences thereof under
Section 40 (c)(2) and (6)(b)

e. Administrative requirements in case of tax-free exchanges, RMO 32-2001, (Nov. 29,

2001) prescribing the new conditions and requirements of tax free exchange as
supplemented by RMO 17-2016 (May 5, 2016)

f. RMO 17-2016 (May 5, 2016), Valuation of property in tax-free exchange of shares of

stock

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g. CIR vs. Filinvest Dev. Corp., GR No. 163653 & 167689, July 19, 2011, decided that
gaining further control qualifies as tax free exchange

h. CTA En Banc cases ruled that a tax-free exchange ruling is not necessary to claim
exemption under Sec. 40(c)(2).

i. CIR vs. Northern Tobacco Redrying, CTA En Banc Case No. 1664, Jan. 31, 2019
ii. CIR vs. Premium Tobacco Redrying Corp, CTA En Banc Case No. 1755, April 22, 2019
iii. CIR vs. Parity Packaging Corp. CTA En Banc Case No. 1783, March 5, 2019

4. Cost basis in tax-free exchanges

RR 18-2001, (Nov. 13, 2001) – Guidelines on Monitoring, Basis of Property in Tax –Free
Exchanges;

RMO 32-2001(Nov. 28, 2001) - Revised and Updated Requirements for Tax Free
Exchanges.

RMO 17-2016 (May 5, 2016) - Supplemental Guidelines for the Non-Recognition of Gain
or Loss on the Transfer of Property in exchange for Shares of Stock

5. Assumption of liability in Tax-Free Exchanges

6. Business Purpose - Gregory vs. Helvering, 293 US 465, 55 SCT 266

7. RR 4-99 (Mar. 9, 1999) - Payment of Capital Gains Tax and DST on an extra-judicial
foreclosure of banks, etc

C. LOSSES FROM WASH SALES OF STOCKS (Sec. 32, NIRC; Sec. 131, RR 2)

D. EXEMPTION FROM CAPITAL GAINS TAX OF CERTAIN INDIVIDUALS FROM THE SALE OR
EXCHANGE OF PRINCIPAL RESIDENCE

Sec. 24 (D)(2), NIRC

RR 13-99 as amended by RR 14-2000 (Nov. 20, 2000)

E. TAX AMNESTY

RA 9480 effective June 16, 2007, Implemented by Dept Order 29-07, August 15, 2007
(Expired May 5, 2008)

F. TAXATION OF SHARES OF UNLISTED STOCKS

RR 6-2008 (Apr. 22, 2008) as amended by RR 6-2013 (April 11, 2013) using Adjusted Net
Asset Method of Valuation of Unlisted Shares

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See also RR 16-2012 (Nov. 7, 2012) for the Tax Treatment of Dispositions of Shares of Stock
of Publicly-listed Companies Whose Public Ownership Levels Fall Below the Mandatory
Minimum Public Ownership (MPO) Level

PART VII
SITUS OF TAXATION

A. SITUS OF TAXATION (Sec. 42, NIRC; Sec. 152-165, RR 2)

1. Gross income from Sources within the Philippines – Commissioner vs. BOAC, G.R. No. L-
65773-74, April 30, 1987, 149 SCRA 395

2. Taxable Income from Sources within the Philippines (CIR vs. CTA and Smith Kline & Fresh
Overseas, G.R. No. L-54108, Jan. 17, 1984 127 SCRA 9)

Rev. Audit Memo Order (RAMO) 1-86 (income from constructive trading of
multinationals)

RR 16-86

RAMO 4-86 (allocation of head office expenses)

RAMO 1-95 (audit guidelines on determination of income tax of branches of

multinationals)

3. Gross Income from Sources without the Philippines

4. Income from sources partly within or without the Philippines

5. Situs of Sales of Stocks in a domestic corporation

6. Definition of Royalties (Philamlife vs. CTA, CA-G.R. SP No. 31283, Apr. 25, 1995, includes
services as to investment, training and education accounting)

7. Effect of Turn Key Projects - CIR vs. Marubeni Corp, G.R. No. 137377, Dec. 18, 2001

8. Guidelines for Computer Software Payment, Royalty, Services or Business Income

RMC 44-2005 (Sept. 1, 2005)

B. ACCOUNTING PERIODS AND METHODS

(Sec. 43-50, NIRC; Sec. 166-179, RR 2; Sec. 51-53 RR 2)

1. General Rule

2. Accounting Period

3. Accounting Method (Cash – Actual/Constructive or Accrual)

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a. Hybrid Method – Consolidated Mines Inc. vs. CTA, G.R. No. L -18843, Aug. 29, 1974

b. Percentage by Completion Method – Sec. 44 RR 2; Sec. 48 NIRC

4. Change of Accounting Period

5. Instalment Basis

6. Allocation of Income and Deductions – Yutivo Sons Hardware Co. vs. CIR, G.R. No. L-
13203, Jan. 28, 1961, 1 SCRA 160

7. Net worth Method

a. Perez vs. CTA, G.R. No. L-10507, May 30, 1958, 103 Phil 1167

b. CIR vs. Reyes G.R. No. L-11534, Nov. 25, 1958

8. Tax Evasion vs. Tax Avoidance

a. CIR vs. Benigno Toda, G.R. No. 147188, Sept. 14, 2004

b. People vs. Judy Ann Santos, CTA Criminal Case No. O-012, Jan. 16, 2013

c. People vs. Joel Mendez, CTA EB Criminal Case No. 014, Dec. 11, 2012

C. ESTATES AND TRUSTS (Sec. 60-66, NIRC; Sec. 207-213, RR 2)

1. General Rule on Taxability –Fiduciary or Beneficiary

2. Personal Exemption Allowed

3. Decedent’s estate administration

Revocable Trusts

4. Income for Benefit of Guarantor

PART VIII

D. RETURNS AND PAYMENTS OF TAX

1. Individual Return (Sec. 51 and 56, NIRC)

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 Income Taxation

a. Who are required to file

b. Those not required to file

c. Where to file

d. Where to pay

e. Capital Gains on Shares of Stocks and Real Estate

f. Quarterly Declaration of Income Tax (Sec. 74, NIRC)

g. RR 3-2002 (Mar. 22, 2002) - Substituted Filing of ITR of Salaried Individuals, as

amended by RR 19-2002 (Oct. 11, 2002)

h. RR 16-2002 (Oct. 11, 2002) – Modes of Payment of Taxes through Banks

2. Corporate Regular Returns (Sec. 52-53 and 56, NIRC)

a. Quarterly Income Tax (Sec. 75, NIRC)

b. Final Adjustment Return (Sec. 76, NIRC)

c. When to File

d. Where to File (Sec. 77, NIRC)

e. When to Pay

f. Capital Gains on Shares of Stock

g. Return of Corporations Contemplating Dissolution/Reorganization

i. Sec. 244, RR 2
ii. BPI vs. CIR (CA-G.R. SP No. 38304, Apr.14, 2000)

E. WITHOLDING TAX

1. Final Withholding Tax at Source (Sec. 57, NIRC)

2. Withholding of Creditable Tax:

a. RR 2-98, RR 12-98 as amended by RR 6-2001 & RR No. 11-2018 & RR 14-2018 to

implement TRAIN Law

b. RR 1-2006, Minimum Wage Earners Exempted from WHT

c. RR 4-2006, Implements RA 9257 New Senior Citizens Act

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 Income Taxation

d. RA 9504 Exempts Minimum Wage Earners

e. ING Bank vs. CIR, G.R. No. 167679, June 27, 2015 (Withholding tax on bonus)

3. Return and Payment of Tax (Sec. 58, NIRC)

4. Tax Deemed Paid on Dividends

a. CIR vs. Proctor & Gamble Philippine Manufacturing Corporation and CTA, G.R. No.
66838, Apr. 15, 1988, 160 SCRA 560

b. Reversed in CIR vs. Proctor & Gamble Philippine Manufacturing Corporation and
CTA, G.R. No. 66838, G.R. No. 66838, Dec. 2, 1991, 204 SCRA 377

5. Withholding agent can file claim for refund - CIR vs. Procter and Gamble, G.R. No.
66838, Dec. 2, 1991, 204 SCRA 377

6. Withholding Tax on Dividends

a. Marubeni Corp vs. CIR, G.R. No. L-76573, Sept. 15, 1989, 177 SCRA 501, reaffirmed
March 7, 1990 Resolution

7. Withholding Tax on Royalties

a. CIR vs. CA and SC Johnson & Sons, Inc., G.R. 127015, June 25, 1999

b. ^Motion for Reconsideration – August 30, 1999

8. RMC 46-2002, tax on royalty payments to US entity adopts most favored nation clause
under RP-China Treaty effective January 1, 2002

9. Golden Arches Dev’t Corporation vs. CIR, CTA Case No. 6862, July 13, 2007- Affirms Rev.
Memo Circular 46-2002 on MFN Clause of 10% on royalties paid to US based on RP-
China Treaty

F. WITHHOLDING TAX ON WAGES

Rev. Regs. No. 8-2018 & 15-2018 (implement TRAIN Law)

G. WITHHOLDING TAX BY GOVERNMENT

RR 2-98

H. E-COMMERCE TAXATION
RMC 70-2015, Oct. 29, 2015 – Taxation of Transport Network Companies

RMC 55-2013, Aug. 5, 2013 – Taxpayers’ obligations in relation to online business

transactions

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 Income Taxation

RMC 44-2005, Sept. 1, 2005 - Taxation of Software Payments

I. RA 10021 dated March 5, 2010 – Exchange of Information on Bank Deposit of Tax Evaders,
Implemented by RR 10-2010 (Oct. 6, 2010)

J. TAX TREATY (US-RP Tax Treaty)

Tax Treaty Relief Application (TTRA)

RMO 72-2010 (Aug. 25, 2010) as amended by RMO 27-2016 (Jun. 23, 2016), superseded by
RMO 8-2017 (Mar. 28, 2017, effective date Jun. 26, 2017, superseding procedures stated
under RMO 72-2010 as amended)

Deutshce Bank AG Manila Branch vs. CIR, G.R. No. 188550, Aug. 19, 2013 - the TTRA should
merely confirm the privilege of the taxpayer to the relief and should not be a requirement
for the enjoyment of such entitlement.

K. Electronic Filing & e-Payment System (EFPS) RR 2-2002 and e-BIR Form RR 6-2014 (Sept. 5,
2014), as amended by RR 5-2015, March 17, 2015

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