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TAXATION 1 NOTES (Atty Rizalina Lumbera) – PRELIMS PERIOD

(SECS 22-30)
 Even if you are alive or you are dead, you are still subjected to SECTION 22 OF THE NIRC (definition of terms)
certain taxes
 TAXES WHEN YOU ARE ALIVE: Income Tax, VAT, Percentage Tax, (A) Person – means any individual, a trust, estate or a corporation
Excise Tax, Documentary Stamp Tax (B) Corporation – includes partnerships, no matter how created or
 TAXES WHEN YOU ARE DEAD: Estate Tax, DST organizes, joint stock companies, joint accounts, associations,
insurance companies, but does NOT include General
National Taxes professional partnerships and a joint venture or consortium
- INCOME TAX: Direct tax on the right to receive income formed for the purpose of undertaking construction projects
- ESTATE TAX: Transfer mortis causa projects or engaging in coal, geothermal, and other energy
- DONOR’S TAX: Donations made inter vivos operations pursuant to an agreement under a service contract
- VAT with the government
- Percentage Tax o General Profesional Partnerships – partnerships formed
- Excise Tax by persons for the sole purpose of exercising their
common profession, no part of income of which is derived
National and Local taxes are not in conflict with one another, they do not in engaging in any trade or business
tax the same things and impose tax on different areas. (C) DOMESTIC – when applied to a corporation, means created or
organized in the Philippines under its laws
Q: WHAT IS INCOME? (D) FOREIGN – when applied to a corporation means corporation,
which is not domestic
A: It is anything that flows in to the wealth of the taxpayer or increases (E) NON RESIDENT CITIZEN
the net worth of the taxpayer, other than the return capital, regardless if o A citizen of the Philippines who establishes to the
the income is derived from legal or illegal sources or that the income is in satisfaction of the commissioner the fact of his physical
kind or cash presence abroad with a definite intention of residing
theiren
Q: WHEN IS INCOME TAXABLE? o A citizen of the Philippines who leaves the Philipines
A: When (1) it is actually or constructively received (2) it must be during the taxable year to reside abroad, either as an
realized (3) it must not be exempted by law immigrant or for employment on a permanent basis
o A citizen of the Philippines who works and derives
Q: What is income tax? income from abroad and whose employment thereat,
A: It is tax on the right to receive income, depends on the source of requires him to be physically present abroad most of the
income. time during the taxable year
o A citizen who has been previously considered as non-
resident citizen and who arrives in the Philippines at any
TYPES OF EARNERS time during the taxable year to reside permanently in the
Philippines shall likewise be treated as a non-resident
 Compensation income earner: usually selling service, and under an citizen for the taxable year in which he arrives in the
EE-ER relationship - “sweldo” Philippines with respect to his income derived from
 Self-Employed individual – selling service, no EE-ER relationship, sources abroad until the date of arrival in the Philippines
usually from trade or business o The taxpayer shall submit proof to the commissioner to
 Mixed Income Earner – there is a profession, there is an EE-ER, show his intention of leaving the Philippines to reside
there could be trade or business permanently abroad or to return and to reside in the
Philippines as the case may be
KINDS OF TAXPAYERS (F) RESIDENT ALIEN – an individual whose residence is within the
Philippines and who is not a citizen thereof
1. Individual Taxpayers (G) NONRESIDENT ALIEN – individual whose residence is not
a. Resident Citizen (RC) within the Philippines and who is not a citizen thereof
b. Non-Resident Citizen (NRC) (H) RESIDENT FOREIGN CORPORATION – applies to a foreign
c. Resident Alien (RA) corporation engaged in trade or business within the
d. Non-Resident Alien Engaged in Trade or Business Philippines
(NRAETB) (I) NON-RESIDENT FOREIGN CORPORATION – applies to a foreign
e. Non-Resident Alien NOT engaged in Trade or corporation NOT engaged in trade or business within the
Business (NRANETB) Philippines
Note: Estate of a deceased person not yet settled or not yet distributed (J) FIDUCIARY – guardian, trustee, executor, administrator,
among the heirs, is considered an individual income taxpayer receiver, conservator or any person acting in any fiduciary
capacity for any person
Trustor-Trustee relationship, with no distribution yet is deemed as an (K) WITHHOLDING AGENT – any person required to deduct and
individual taxpayer withhold tax
(L) SHARES OF STOCK – includes shares of stock in a
2. Corporate Taxpayers CORPORATION Warrants and/or options to purchase shares of
a. Domestic Corporation stock, as well as units of participation in a partnership (except
b. Resident foreign corporation general professional partnership), joint stock corporations,
c. Non-resident foreign corporation joint ventures, taxable as corporations, associations, and
recreation or amusement clubs, such as golf, polo or similar
Partnerships – they are treated as corporate taxpayers clubs and mutual fund certificate
Two kinds of partnerships under the tax code: (M) SHAREHOLDER – holders of a share/s of stock, warrant/s and
or options to purchase shares of stock in a corporation, as well
i. General Professional Partnership: exercise of profession of the as a holder of a unit of participation in a PAT xpn, GEN PROF
partners and no part of its income is derived from trade or PAT in a joint stock company, as association, joint stock
business; not subject to tax corporations, joint ventures, taxable as corporations,
ii. General Co-partnership – subject to tax, same rates as DC associations, and recreation or amusement clubs, such as golf,
o Joint venture agreements are also subject to tax polo or similar clubs and mutual fund certificate, or insurance
company
(N) TAXPAYER – any person subject to tax imposed in this title
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(O) INCLUDING/INCLUDES – shall not be deemed to exclude other 'ordinary loss' includes any loss from the sale or exchange of
things otherwise within the meaning of the term defined property which is not a capital asset. Any loss from the sale or
(P) TAXABLE YEAR – the calendar year, or the fiscal year ending exchange of property which is treated or considered, under
during the calendar year, upon the basis of which the net other provisions of this Title, as 'ordinary loss' shall be treated
income is computed under this title as loss from the sale or exchange of property which is not a
 Taxable year – includes, in the case of a return made for a fractional capital asset. – so yung loss or gain ng ordinary assets
part of a year under the provisions of this title or under rules and (AA) The term "rank and file employees" shall mean all employees
regulations prescribed by the secretary of finance, upon who are holding neither managerial nor supervisory position
recommendation of the commissioner, the period for which the as defined under existing provisions of the Labor Code of the
return is made Philippines, as amended.
(Q) FISCAL YEAR – means an accounting period of 12 months (BB) The term "mutual fund company" shall mean an open-end and
ending on the last day of any month, other than December close-end investment company as defined under the
(R) PAID OR INCCURED/PAID OR ACCRUED – shall be construed Investment Company Act.
according to the method of accounting upon the basis of which (CC) The term "trade, business or profession" shall not include
the net income is computed under this title performance of services by the taxpayer as an employee; no
(S) TRADE OR BUSINESS – includes performance of functions of EE-ER relationship
the public office (DD) The term "regional or area headquarters" shall mean a
(T) SECURITIES – shares of stock in a corporation and rights to branch established in the Philippines by multinational
subscribe for or to receive such shares companies and which headquarters do not earn or derive
o Includes bonds, debentures. Notes, certificates or other income from the Philippines and which act as supervisory,
evidence of indebtness issued by any corporation communications and coordinating center for their affiliates,
including those issued by a government or political subsidiaries, or branches in the Asia-Pacific Region and other
subdivision thereof, with interest coupons or registers in foreign markets.
form (EE) The term "regional operating headquarters" shall mean a
(U) DEALER IN SECURITIES – merchant of stocks or securities, branch established in the Philippines by multinational
whether an individual partnership or corporation, with an companies which are engaged in any of the following services:
established place of business regularly engaged in the general administration and planning; business planning and
purchase of securities and the resale thereof to customers that coordination; sourcing and procurement of raw materials and
is one who, as a merchant buys securities and re-sells them to components; corporate finance advisory services; marketing
customers with a view to the gains and profits that may be control and sales promotion; training and personnel
derived therefrom management; logistic services; research and development
(V) BANK – any bank defined under the General Banking Act services and product development; technical support and
a. Kinds of banks: commercial, thrift, rural or maintenance; data processing and communications; and
specialized government bank, development bank business development.
(W) NON- BANK FINANCIAL INTERMEDIARY – performing quasi
banking services (FF) The term "long-term deposit or investment
(X) The term "quasi-banking activities" means borrowing funds certificates" shall refer to certificate of time deposit or investment
from twenty (20) or more personal or corporate lenders at any
in the form of savings, common or individual trust funds, deposit
one time, through the issuance, endorsement, or acceptance of
debt instruments of any kind other than deposits for the substitutes, investment management accounts and other
borrower's own account, or through the issuance of certificates investments with a maturity period of not less than five (5) years,
of assignment or similar instruments, with recourse, or of the form of which shall be prescribed by the Bangko Sentral ng
repurchase agreements for purposes of relending or purchasing Pilipinas (BSP) and issued by banks only (not by nonbank financial
receivables and other similar obligations: Provided, however, intermediaries and finance companies) to individuals in
That commercial, industrial and other non-financial denominations of Ten thousand pesos (P10,000) and other
companies, which borrow funds through any of these means
denominations as may be prescribed by the BS.
for the limited purpose of financing their own needs or the
needs of their agents or dealers, shall not be considered as
(FF) STATUTORY MINIMUM WAGE EARNER – shall refer to the rate
performing quasi-banking functions.
fixed by the regional tripartite wage and productivity board, as
(Y) The term "deposit substitutes" shall mean an alternative from
defined by the BLES and DOLE
of obtaining funds from the public (the term 'public' means
(GG) Minimum wage earner – shall refer to a worker in the private
borrowing from twenty (20) or more individual or corporate
sector paid the statutory minimum wage; or to an employee in
lenders at any one time) other than deposits, through the
the public sector with compensation income of not more that
issuance, endorsement, or acceptance of debt instruments for
the statutory minimum wage in the non-agricultural sector
the borrowers own account, for the purpose of relending or
where he/she is assigned
purchasing of receivables and other obligations, or financing
their own needs or the needs of their agent or dealer. These  So parang kapag sa PRIVATE – saktong minimum wage lang, kapag
instruments may include, but need not be limited to bankers' sa PUBLIC naman pwede mas mababa pa sa minimum wage
acceptances, promissory notes, repurchase agreements,
including reverse repurchase agreements entered into by and END OF SECTION 22
between the Bangko Sentral ng Pilipinas (BSP) and any
authorized agent bank, certificates of assignment or INDIVIDUAL TAXPAYERS
participation and similar instruments with recourse: Provided,
however, That debt instruments issued for interbank call loans 1. Resident Citizen
with maturity of not more than five (5) days to cover 2. Non-Resident Citizen
deficiency in reserves against deposit liabilities, including 3. Resident Alien
those between or among banks and quasi-banks, shall not be 4. Non-resident Alien NOT engaged in t/b
considered as deposit substitute debt instruments. 5. Non-resident alien engaged in t/b
(Z) The term "ordinary income" includes any gain from the sale
or exchange of property which is not a capital asset or property
described in Section 39(A)(1). Any gain from the sale or (1) RESIDENT CITIZEN
exchange of property which is treated or considered, under  A citizen of the Philippines residing therein is taxable on all income
other provisions of this Title, as 'ordinary income' shall be derived from sources within and without the Philippines (SEC 23 A)
treated as gain from the sale or exchange of property which is  An income tax is hereby imposed: On the taxable income [ SEC 31:
not a capital asset as defined in Section 39(A)(1). The term TAXABLE INCOME: means the pertinent items of gross income
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specified in this code, less the deductions, if any, authorized for such SEC 23 (B): A NRC is taxable only on income derived from
types of income by this code or other special laws), other than under sources within the Philippines
sections B, C, D of section 24 derived for each taxable year from all
sources within and without the Philippines, by every individual
citizen residing therein (SECTION 24 A 1)
 Who are residing Filipino citizens – those who are physically staying (3) RESIDENT ALIEN
or present in the Philippines or has an intention to reside her
permanently, or those who are absent but has an intention to return SECTION 22 (F) RESIDENT ALIEN – an individual whose residence is
 Who are Filipino Citizens? within the Philippines and who is not a citizen thereof
Section 1. The following are citizens of the Philippines: SECTION 24 (A)(1)(C): On the taxable income defined in section 31 of
[1] Those who are citizens of the Philippines at the time of the this code, other than income subject to tax under Subsections B,C,D
adoption of this Constitution; derived for each taxable year from all sources within the Philippines by
[2] Those whose fathers or mothers are citizens of the an individual alien who is a resident of the Philippines
Philippines;
[3] Those born before January 17, 1973, of Filipino mothers,  Period of time residing in the Philippines is not material, if
who elect Philippine citizenship upon reaching the age of pagdating palang ditto sa pilipinas, the intention is clear and
majority; and manifest to reside, there is no required number of days
[4] Those who are naturalized in accordance with law.  Sec 23 (D): An alien individual, whether a resident or not of the
(ARTICLE IV, SECTION 1 OF THE PHILIPPINE CONSTITUTION) Philippines is taxable only on income derived from sources within
the Philippines

(2) NON-RESIDENT CITIZEN (4) NON-RESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS


Section 22 G: NONRESIDENT ALIEN – individual whose residence is
Section 22 E of the NIRC: NON RESIDENT CITIZEN not within the Philippines and who is not a citizen thereof
o A citizen of the Philippines who establishes to the
satisfaction of the commissioner the fact of his physical Section 25 (A)(1): A non-resident alien individual engaged in trade
presence abroad with a definite intention of residing or business or business in the Philippines shall be subject to an
therein income tax in the same manner as an individual citizen (RC) and
 Intention must be manifest to reside in another resident alien individual from all sources within the Philippines
country o A non-resident alien individual who shall come to the
o A citizen of the Philippines who leaves the Philippines Philippines and stay therein for an aggregate period of
during the taxable year to reside abroad, either as an more than 180 days during any calendar year shall be
immigrant or for employment on a permanent basis deemed a NRAETB
 Those who have VISAs  A citizen of another country, not residing in the Philippines but
o A citizen of the Philippines who works and derives engaging in economic or commercial activities in the Philippines
income from abroad and whose employment thereat,  T/B: refers to economic or commercial transactions in the
requires him to be physically present abroad most of the Philippines
time during the taxable year
 OFWs are covered in this case (5) NON-RESIDENT ALIEN NOT ENGAGED IN TRADE OR
o A citizen who has been previously considered as non- BUSINESS
resident citizen and who arrives in the Philippines at any  Citizen of another country, not residing in the Philippines and who is
time during the taxable year to reside permanently in the not entering in economic or commercial transactions in the
Philippines shall likewise be treated as a non-resident Philippines
citizen for the taxable year in which he arrives in the  Section 25 B: There shall be levied, collected and paid for each
Philippines with respect to his income derived from taxable year upon the entire income received from all sources
sources abroad until the date of arrival in the Philippines WITHIN the Philippines by every non-resident alien individual, not
 Does not return yet to Phil – NRC engaged in trade or business within the Philippines
 Upon return here in Phil – RC  Sec 22 G: Non-resident alien: means an individual whose residence
o The taxpayer shall submit proof to the commissioner to is not within the Philippines, and who is not a citizen thereof
show his intention of leaving the Philippines to reside  Sec 23 D: An alien individual, whether a resident or not of the
permanently abroad or to return and to reside in the Philippines is taxable only on income derived from sources within
Philippines as the case may be the Philippines
o Seamen
 Not residing in the phil but he is also not SUMMARY OF TAXABLE LIABILITIES OF INDIVIDUAL TAXPAYERS
residing somewhere else, he is not earning
income from the Philippines TAXPAYER TAXABLE FROM TAXABLE FROM
o Those na nagbabakasyon sa ibang bansa are NOT non- SOURCES WITHIN SOURCES WITHOUT
resident citizens of the Philippines
RC YES YES
NRC YES NO
Section 24 (A) (1) (B): An income tax is imposed on the taxable income
RA YES NO
[TAXABLE INCOME: means the pertinent items of gross income specified
NRAETB YES NO
in this code, less the deductions, if any, authorized for such types of
NRANETB YES NO
income by this code or other special laws, ] other than income subject to
tax under subsections B,C,D of this section derived for each taxable year
from all sources within the Philippines by an individual citizen of the
Philippines who is residing outside the Philippines including overseas
contract workers including CORPORATE TAXPAYERS
SEC 23 (C): An individual citizen of the Philippines who is 1. Domestic Corporation
working and deriving income from abroad as an overseas contract 2. Resident – Foreign Corporation
worker is taxable only for income from sources within the Philippines. 3. Non-Resident Foreign Corporation
Provided, That a seaman, who is a citizen of the Philippines and who
receives compensation for services rendered abroad as a member of the (1) DOMESTIC CORPORATION
complement vessel engaged exclusively in international trade shall be  Sec 22 (c): means created or organized in the Philippines or under
treated as an overseas contract worker its laws

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 Sec 23 (E): A domestic corporation is taxable on all income derived (A) Gross Income From Sources Within the Philippines. - The following
from sources within and without the Philippines items of gross income shall be treated as gross income from sources
(C) Sec 27 (A): Taxable for income, within and without the within the Philippines:
Philippines by every corporartion defined under section 22 B
(1) Interests. - Interests derived from sources within the
[Corporation – includes partnerships, no matter how created
or organizes, joint stock companies, joint accounts, Philippines, and interests on bonds, notes or other interest-
associations, insurance companies, but does NOT include bearing obligation of residents, corporate or otherwise;
General professional partnerships and a joint venture or (2) Dividends. - The amount received as dividends:
consortium formed for the purpose of undertaking (a) from a domestic corporation; and
construction projects projects or engaging in coal, geothermal, (b) from a foreign corporation, unless less than
and other energy operations pursuant to an agreement under a fifty percent (50%) of the gross income of such
service contract with the government
foreign corporation for the three-year period ending
o General Proffesional Partnerships – partnerships formed
by persons for the sole purpose of exercising their with the close of its taxable year preceding the
common profession, no part of income of which is derived declaration of such dividends or for such part of
in engaging in any trade or business such period as the corporation has been in
existence) was derived from sources within the
Organized under laws of the Philippines. Philippines as determined under the provisions of
this Section; but only in an amount which bears the
Q: WHAT IS A FOREIGN CORPORATION?
A: Entity incorporated in accordance with any law other than the same ration to such dividends as the gross income of
Philippines or a foreign law the corporation for such period derived from
sources within the Philippines bears to its gross
(2) RESIDENT FOREIGN CORPORATION income from all sources.
 Section 22 H: RESIDENT FOREIGN CORPORATION – applies to a (3) Services - Compensation for labor or personal services
foreign corporation engaged in trade or business within the performed in the Philippines;
Philippines (4) Rentals and Royalties. - Rentals and royalties from
 Sec 23 F: A foreign corporation, whether engaged or not in trade or
property located in the Philippines or from any interest in such
business in the Philippines is taxable only on income derived from
sources within the Philippines property, including rentals or royalties for -
 Section 28 (A) (1): A RFC is taxable only from income derived (a) The use of or the right or privilege to use in the
within the Philippines Philippines any copyright, patent, design or model,
 It has a branch here in the Philippines, even if principal place of plan, secret formula or process, goodwill, trademark,
business is abroad, and such branch here in the phil is the RFC trade brand or other like property or right;
 There is an agent assigned here (b) The use of, or the right to use in the Philippines
 There is hiring of EEs any industrial, commercial or scientific equipment;
 Principle of habituality
(c) The supply of scientific, technical, industrial or
(3) NON-RESIDENT FOREIGN CORPORATION commercial knowledge or information;
 Incorporated under foreign laws but is not engaged in trade or (d) The supply of any assistance that is ancillary and
business within the Philippines (22 I) subsidiary to, and is furnished as a means of
 Sec 23 F: A foreign corporation, whether engaged or not in trade or enabling the application or enjoyment of, any such
business in the Philippines is taxable only on income derived from property or right as is mentioned in paragraph (a),
sources within the Philippines any such equipment as is mentioned in paragraph
 SECTION 28 (B) (1): Taxable only from all sources WITHIN the (b) or any such knowledge or information as is
Philippines at the rate of 30%
mentioned in paragraph (c);
SUMMARY OF TAX LIABILITIES OF CORPORATE TAX PAYERS (e) The supply of services by a nonresident person
or his employee in connection with the use of
TAXPAYER TAXABLE FOR TAXABLE FOR property or rights belonging to, or the installation or
SOURCES WITHIN SOURCES WITHOUT operation of any brand, machinery or other
DC YES YES apparatus purchased from such nonresident person;
RFC YES NO (f) Technical advice, assistance or services rendered
NRFC YES NO in connection with technical management or
administration of any scientific, industrial or
commercial undertaking, venture, project or
NOTE: Under section 25 (C) (D) & (E) There are “special aliens”
1. Alien individual employed by regional or area HQs and ROHQS scheme; and
of multinational companies (g) The use of or the right to use:
2. Alien individual employed by offshore banking units (i) Motion picture films;
3. Alien individual employed by petroleum service contractor and (ii) Films or video tapes for use in
subcontractor connection with television; and
o They are working in the PHIL, but they are classified as (iii) Tapes for use in connection with
NRANETB
radio broadcasting.
o Their income is taxable as NIT, same rates as provided in
Section 24 (a) (5) Sale of Real Property. - Gains, profits and income from the
sale of real property located in the Philippines; and
Q: HOW DO YOU DETERMINE IS INCOME IS SOURCED WITHIN OT (6) Sale of Personal Property - Gains; profits and income
WITHOUT THE PHILIPPINES? from the sale of personal property, as determined in
A: You look at Section 42 of NIRC Subsection (E) of this Section.

(B) Taxable Income From Sources Within the Philippines. -


SEC. 42. Income from Sources Within the Philippines.-

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(1) General Rule. - From the items of gross income specified in income may first be computed by deducting the expenses,
Subsection (A) of this Section, there shall be deducted the losses or other deductions apportioned or allocated thereto
expenses, losses and other deductions properly allocated and a ratable part of any expense, loss or other deduction
thereto and a ratable part of expenses, interests, losses and which cannot definitely be allocated to some items or classes of
other deductions effectively connected with the business or gross income; and the portion of such taxable income
trade conducted exclusively within the Philippines which attributable to sources within the Philippines may be
cannot definitely be allocated to some items or class of gross determined by processes or formulas of general
income: Provided, That such items of deductions shall be apportionment prescribed by the Secretary of Finance.
allowed only if fully substantiated by all the information
necessary for its calculation. The remainder, if any, shall be Gains, profits and income from the sale of personal property produced (in
treated in full as taxable income from sources within the whole or in part) by the taxpayer within and sold without the Philippines,
Philippines. or produced (in whole or in part) by the taxpayer without and sold within
(2) Exception. - No deductions for interest paid or incurred the Philippines, shall be treated as derived partly from sources within and
abroad shall be allowed from the item of gross income partly from sources without the Philippines.
specified in subsection (A) unless indebtedness was actually
incurred to provide funds for use in connection with the Gains, profits and income derived from the purchase of personal property
conduct or operation of trade or business in the Philippines. within and its sale without the Philippines, or from the purchase of
personal property without and its sale within the Philippines shall be
(C) Gross Income From Sources Without the Philippines. - The treated as derived entirely form sources within the country in which
following items of gross income shall be treated as income from sources sold: Provided, however, That gain from the sale of shares of stock in a
without the Philippines: domestic corporation shall be treated as derived entirely form
(1) Interests other than those derived from sources within the sources within the Philippines regardless of where the said shares
Philippines as provided in are sold. The transfer by a nonresident alien or a foreign corporation to
paragraph (1) of Subsection (A) of this Section; anyone of any share of stock issued by a domestic corporation shall not
(2) Dividends other than those derived from sources within be effected or made in its book unless: (1) the transferor has filed with
the Philippines as provided in the Commissioner a bond conditioned upon the future payment by him of
paragraph (2) of Subsection (A) of this Section; any income tax that may be due on the gains derived from such transfer,
(3) Compensation for labor or personal services performed or (2) the Commissioner has certified that the taxes, if any, imposed in
without the Philippines; this Title and due on the gain realized from such sale or transfer have
(4) Rentals or royalties from property located without the been paid. It shall be the duty of the transferor and the corporation the
Philippines or from any interest in shares of which are sold or transferred, to advise the transferee of this
such property including rentals or royalties for the use of or requirement.
for the privilege of using
without the Philippines, patents, copyrights, secret END OF SECTION 42
processes and formulas, goodwill,
trademarks, trade brands, franchises and other like
properties; and
Q: WHAT DO WE LOOK AT TO DETERMINE IF SOMETHING IS
(5) Gains, profits and income from the sale of real property TAXABLE WITHIN OR WITHOUT?
located without the Philippines.
INTERESTS Debtor’s POV
(D) Taxable Income From Sources Without the Philippines. - From the DIVIDEND INCOME
items of gross income specified in Subsection (C) of this Section there
shall be deducted the expenses, losses, and other deductions properly  From DC Income within
 From FC Income within, if 50% or more of
apportioned or allocated thereto and a ratable part of any expense, loss
the gross income of the foreign
or other deduction which cannot definitely be allocated to some items or company for the past three years
classes of gross income. The remainder, if any, shall be treated in full as was derived from sources within
taxable income from sources without the Philippines. the Philippines

(D) Income From Sources Partly Within and Partly Without the Income without, if less than 50% of
Philippines.- Items of gross income, expenses, losses and the gross income of the FC for the
past three years was derived from
deductions, other than those specified in Subsections (A) and
sources within the Philippines
(C) of this Section, shall be allocated or apportioned to sources SERVICE INCOME Place of performance
within or without the Philippines, under the rules and Rent Income Location of property
regulations prescribed by the Secretary of Finance, upon Royalty Income Place of use
recommendation of the Commissioner. Where items of gross Gain on sale of personal Place of sale
income are separately allocated to sources within the property
Philippines, there shall be deducted (for the purpose of Gain on sale on Domestic shares Income within
computing the taxable income therefrom) the expenses, losses of stock
and other deductions properly apportioned or allocated
Q: WHAT DO YOU MEAN, IT IS TAXABLE PARTLY WITHIN &
thereto and a ratable part of other expenses, losses or other
WITHOUT?
deductions which cannot definitely be allocated to some items A: In this case, ito ata yung hindi pa siya finished product. It needs to be
or classes of gross income. The remainder, if any, shall be produced or manufactured in a different place, and is sold in another vice
included in full as taxable income from sources within the versa. Taxable lang siya in proportion
Philippines. In the case of gross income derived from sources
partly within and partly without the Philippines, the taxable

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TAX ON INDIVIDUALS o Kapag naman ibang taxpayer na, exempt na yan kapag sa
ibang bansa nag preterminate etc, din a yan taxable dito
Q: WHAT ARE THE TYPES OF EARNERS? sa pilipinas kahit di pa niya tinapos yung deposit
o If there is pretermination
A:  Nasa bank ng less than three years – RATE OF
 Compensation income earners: Those who have an EE-ER TAX: 20%
relationship  Nasa bank ng less than 4 years – 12 %
o RATE OF TAX: NIT (Net income tax)  Nasa bank ng less than 5: 5%
 The rate of NIT is followed as provided in o The rationale in this case, is if you lend to the government
Section 24 (A) (2) (a) hindi ka na nila itatax kaya lilibre ka sa tax kapag di ka
 Self- Employed Individuals nag preterminate ng 5 taon
o If their gross sales or gross receipts and other non- (2) Cash or property dividends
operating income does not exceed (3M)  RATE:10% = imposed upon the cash and/or property dividends
 The 3M is the VAT threshold as provided in actually or constructively received by an individual from a DC or
section 109 BB from a joint stock company, insurance or mutual fund companies,
o RATE OF TAX: They have an option to avail (if does not operating HQs of multinational companies, or on the share of an
exceed 3M) either NIT (Schedular) or 8% tax on the gross individual in the distributable net income after tax of PAT.
sales or gross receipts and other non-operating income in
excess of 250,000 pesos in accordance with SEC 24 (A)
(2) (a) SECTION 24 C: CAPITAL GAINS FROM SALE OF SHARES OF STOCK NOT
o If more than 3M, The rate of tax is NIT TRADED IN STOCK EXCHANGE
 Mixed Income Earner  Rate: 15% fwt from the sale, barter, exchange or other disposition of
o All income from compensation: NIT shares of stock in a domestic corporation except shares sold or
o All income from business or practice or t/p disposed on in SE.
 If does not exceed 3M: NIT/8% on the gross o Not over 100,000 = 5%
sales or receipts and other non-operating o On any amount in excess of 100,000 = 10%
income based on the NIT rates (scheduler  APPLICATION: If listed in the stock exchange, you bought it for
table) 500,000 and the book value is 1 million. You sold it at 100,000
 If exceed the 3M threshold: NIT because there is a crash in the stock market
o ANONG RATE? SECTION 127 APPLIES: Kasi listed siya sa
NOTE: You can only choose and avail of the type of tax you pay once a stock market, tsaka wala namna kasing donative intent
year, if you do not choose, default NIT na talaga siya o Rate under section 127 (A) 6/10 of 1% of the gross
selling price
 What if it is not listed in the SE? Binenta mo ng maayos na price?
SECTION 24 RATES IN SECTION 24 APPLIES
 What if NOT listed in SE? Hindi mo binenta ng maayos. May donative
(A) Rates on income tax on individual citizens and individual intent. Bayad ka ng donor’s tax under section 100
resident aliens of the Philippines o SECTION 100: When personal property is transferred for
less than full consideration in money/money’s worth kung
(1) Income tax of RC: All income from WITHIN and without the magkano nalugi mo yun ang mag impose ng donor’s tax
Philippines, taxable as income under A. If will fall under purely  Rate: 6%
compensation or “others”, tsaka kapag wala sa B,C & D. So sa B,  What if listed in SE and binenta mo ng maayos na price? 6/10 of 1%
kapag yung source is foreign, dito nay an sa A. Kapag Sa C pa din
naman, kapag listed in SE, dito na din yan sa A. Kapag sale of  39 (B): In the case of a taxpayer, other than a corporartion, only the
ORDINARY assets, or assets na OUTSIDE the Philippines, A na following percentages of the gain or loss recognized upon the sale or
din yan mahuhulog exchange of capital asset shall be taken into account in computing:
(2) Income tax of NRC: All income WITHIN the Philippines lang ang net capital gain, net capital loss and net income
taxable, if it is without. It’s no longer taxable. o 100% if capital asset has been held for not more than 12
(3) Income tax of RA: All income WITHIN the Philippines lang ang months
taxable in this case. Kapag wala din sa B,C,D dito nay an sa A o 50% if capital has been held for more than 12 months
mahuhulog
Q: WHAT ARE THE TYPES OF ASSETS
SECTION 24 (B) – Rate of Tax on certain Passive Income A: Ordinary and Capital
Ang tawag sa type of tax na ito is FINAL WITHHOLDING TAX  Ordinary – assets used by the taxpayer in business
 Capital – not used in t/b
(1) Interests, Royalties, Prizes and Other winnings
 Interests : 20% - PESO currency SECTION 39 (A) (1): The term “capital assets” means property held by
 Interest: 15% = FOREIGN CURRENCY the taxpayer, whether or not connected with his trade or business but
o Xpn: Non-resident individual does not include
 Royalties – 20 %
o XPN: books, literary works, other musical compositions: (1) Stock in trade of taxpayer or other property of a kind which
10 % RATE FWT would properly be included in the inventory if on hand at the
 Prizes: if less than 10,000 pesos = NIT rates close of the taxable year
o If more than 10,000: RATE: 20-% (2) Property held by the taxpayer primarily for the sale to
 Winnings from PCSO/Lotto customers in the ordinary course of his trade or business
o If less than 10k; exempt (3) Property used in the trade or business of a character which is
o If more than 10k: 20% fwt subjected to allowance for depreciation
 Interest income from long term deposit or investment in the form of (4) Real property used in t/b by taxpayer
savings etc: EXEMPTED if at least five years and no pretermination
o We are Only talking about banks in the Philippines, kapag SECTION 24 (D): capital gains from sale of real property
RC/DC since taxable siya worldwide, ang tax kapag sa  Section 6 e: it is the commissioner who prescribes the rates
ibang bansa yung preterminate etc NIT na.  Under here, either a final tax of 6% gross selling price or current
market value, whichever is higher

MTAC 2019
 It is imposed on capital gains presumed to have been realized from B. Passive income – taxable din worldwide, kapag galling sa pinas
the sale, exchange or other disposition of real property ang source FWT ang tawag sa tax, pag galling sa ibang bansa, sa
o It must be located in the Philippined NIT/8% na yung tawag
o Classified as capital assets [SECTION 39 (A)(1) DEFINES C. Fwt kapg loob ng pinas, nit kapag galling na sa labas pero again
CAPITAL ASSENTS] rc siya so taxable siya worldwide
 What are included? D. Real property – kapag capital asset at nasa pinas, fwt kapag sa
o Pacto de retro ibang bansa, taxable pa din siya pero others na or nit
o Other forms of conditional sales
o Estates and trusts (2) If NRC
 Tax liability on gains from sales or other dispositions of real
property to the government, or any of its political subdivisions or A. All income derived from the sources outside the Philippines are
GOCCS not taxable in this case, but all income from Philippines are
o This talks about forced sales taxable. This letter a talks about compensation income, income
o You have a chouce, CGIT na 6% or NIT under section 24 from t/b or any other income as “others” na wala sa b,c, d rates
o Mas beneficial daw kapag NIT kasi kapag wala ka kinita, are yung 3m threshold ekek rules
wala ding itatax sayo B. Interests – 20% if peso
 Exception regarding the taxability of proceeds from the sale of RP o Interests- 15% if dollars
o The capital gains from the sale of residence o time deposit not preterminated in phil, exempted
 Proceeds = if fully utilized in acquiring or o time deposited not pt in us – no tax
constructing new principal residence within 18 o raffle in the Philippines 9,999.99 pesos: nit
calendar months from the sale is exempted o if more than 10,000 pesos fwt 20%
from capital gains tax under this section o lotto in the phil: exempted if less than 10k, if more than
 Conditions 10k fwt of 20%
o Historical costs is carried o lotto in states, raffle – not taxable
out o royalties – distributed in the Philippines, tax: fwt: 20%, if
o Commissioner is notified literary works, musical compositions: 10%
within 30 days from the o if royalties distributed in the states- no tax
date of sale to avail of the  dividends – fc issued to nrc. Is it taxable? Yes, nit. If more than 50%
tax exemption o if the xpn applies
o Such tax exemption can  17% within
only be availed of once  83% without
within 10 years o If issued by dc to nrc, yes it is taxable fwt 10%
 When is the exception partially applicable?
o If the proceeds of the sale are not fully utilized, yung C. SMC issued 300,000 pesos to nrc. The rate is fwt 15%
sobra shall be subject to CGT. o but shares of stock from the us are not taxable
 RATE? Gross selling prince or fmv at the time D. Location of property is the key here
of sale, whichever is higher multiplied by a a. Bahay bili pinas: fwt 6% cgt
fraction of the unutilized amount bearts the b. Bahay nili states no tax
rate of 6%
 Note: the exception applies only to the house and not the land (3) RA
 Application: house is sold at 1.8m. the house was bought at 800,000 - Domiciled in another country, all income within the phil,
the 1m is left. 1m is taxable taxable
 Application: co-owners wanted to sell a house and lot, who can - Cgt; no exemption because ra cannot own rp in philippines =
claim exemption? this is only the general rule
o The one who owns it as his/her actual principal place of o Xpn: Filipino heritage, born in states and maerican
residence, but since it is co-ownership only up to the xirizen: inheritance of property in the Philippines
extent of my share, will I be exempt from cgt and decided to stay in the philipppines
 Application: Jordan lives in alabang, and works in qc, b works in  This is the actual principal residence, cgt
alabang and lives in qc. They exchamged their property. Both should may be applied for
 Seller pays siya kumita eh
pay cgt
- No Filipino heritage, Caucasian, ta decided to buy a condo, can
 Application: loan secured by a mortgagee
apply for cgt exception
o It was foreclosed: no cgt
o Foreclosed sale at auction: no cgt
o Once the redemption period expires (1) year redemption
period, it is only when the cgt attaches because it is only SECTION 25 Non- resident alien individuals
when there is a transfer of ownership
o Who pays the cgt? Highest bidder, if redeemed by (a) NRAETB
additional owner, no cgt. Because cgt is paid only when
there is a transfer of ownership (1) GR: NRAETB has the same tax liabilities with rc and ra from
income derived from sources within Philippines
(2) Cash and or property dividends from dc, joint stock
APPLICATIONS company, insurance mutual fund, regional headquarters of
multinational. Et: 20% rate
(1) If RC  Interests, royalties prizes: fwt 20%
 Prizes if amounting to 10,000 or less is nit
A. Taxable worldwide siya, from all income derived within and  Prizes if amounting to more than 10k is fwt 20%
without the Philippines, so taxable siya sa sweldo niya, sa  Cinematographic films: 20%
parlor niya kahit nasaang bansa pa siya, lecture, cocaine (oo  Royalties in books, literary works, musical compositions: 10%
taxable din siya sa cocaine because the law does not  Interest income form long term deposit: same rates lang. no
distinguish naman kung legal or illegal), “others” yung tawag pretermination dapat before 5 years to be exempted, but again only
kapag hindi compensation income from ee-er ganon pa din sa banks inside phil mag apply yung rules, if outside phil, nakuha
yung rates as discussed, yung 3M threshold applicable pa din kahit san pa diyan, di na yan taxable
 Capital gains – same rates under sec 24 c & d
o C= 15%

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 Kapag lugi  FWT 15% basis: Sec 27 (D) (2)
 Listed = no donative intent 6/10 of  Sec 27 D (2): “A final tax at the rate of 15% shall be imposed on net
1% capital gains realized during the taxable year from the sale,
o Yes donative intent = exchange or other dispositions of shares of stock in a domestic
donor’s tax = 6% corporation except shares sold or disposed through the stock
 Not listed = donor’s tax exchange”
 Kapag sold ng maayos. Listed = 6/10 of 1%
 Kapag sold ng maayos, not listed 15% Q: What is the rate if it is on the sale of RP?
o D = CGT 6% Binenta mo man yan ng lugi or kita, 6% pa  Sec 27 (D)(5): A final tax of 6% is hereby imposed on the gain
din ang rate. Same rules presumed to have been realized on the sale, exchange or disposition
of lands and/or buildings which are NOT actually used in the
SECTION 25 (B) NRAENETB business of the corporation and treated as CAPITAL ASSETS based
 For classifications under A and B of section 24. Tax rate is 25% gross on the gross selling price or fair market value as determined with
income tax or final tax Sec 6 (E)
 For c and d of section 24, same rates lang. 15% for c and 6% on D o Sec 6 E: Authority of the commissioner to prescribe real
property values
Section 25 c,d & e = SPECIAL ALIENS
 NIT rates na for A and B. no longer given preferential treatment Q: What is the rate of tax if income is received from a foreign corporation?
A: NIT 30% SEC 27 (A).
o Same concept lang sila sa individuals, kapag wala sa B,C,D
nasa A.
o Kapag received from a foreign corporation or an
individual, taxable siya under NIT @ 30% and the legal
basis is section 27 A.

SECTION 26 Tax Liability of Members of General Professional Q: What is MCIT?


Partnerships A: Sec 27 (E) (1)” A minimum corporate income tax of two percent of the
gross income as of the end of the taxable year, as defined herein, is hereby
 A general professional partnership as such shall NOT be subject to imposed on a corporation taxable under this title, beginning on the fourth
income tax under this chapter taxable year immediately following the year in which such corporation
 So a GPP is NOT subject to income tax commenced in business operations, when the minimum income tax is
 Are they exempted from liabilities? NO. greater than the tax computed under subsection A for the taxable year”
 Persons engaging in business as partners in a general professional
partnership shall be liable for income tax only in their separate and Q: What is IAET?
individual capacities A Improperly accumulated tax
 How do you compute the distributive share of partners?
o Net income of PAT shall be computed in the same manner
as a corporation MINIMUM CORPORATE INCOME TAX
o So other partnerships are taxable
o Only general professional Partnerships are EXEMPT from The corporation is TAPSILUGAN XYZ
tax
o Each partner shall report as gross income his distributive First what is GROSS INCOME?
share, actually or constructively received in the net  Under Section 27 (E)(4): Gross income shall mean gross sales less
income of the partnership. sales returns, discounts and allowances and costs of goods sold

So, illustrate natin yung income ni Tapsilugan

2019 2020 2021 2022


ATTY. LUMBERA’S DISCUSSION ON CORPORATIONS
20 million (Ito ang 9.5 is the gross 10 M is the gross In this example,
ilagay natin both
WITHIN WITHOUT kinita mo) income income
yung mangyayari
DOMESTIC TAXABLE TAXABLE 12 million (ito ang 6.8M which is yung 9.6 is yung sweldo ng kung lugi and kita
CORPORATION puhunan mo) mga sweldo ng mga empleyado,
12 M is the gross
RESIDENT FOREIGN TAXABLE NOT TAXABLE empleyado mo, costs costs
income – 11.7 costs,
CORPORATION 20M-12M = 8M sweldo ng employee
[Revenue – Capital 9.5-6.8 = 2.7M 10M-9.6M = 400,000
NON-RESIDENT TAXABLE NOT TAXABLE
= gross income] = 300,000 [Taxable
FOREIGN 2.7M x 30%NIT = 400,000 x 30%NIT
net income]
810,000 [this is under
CORPORATION So 8M is now your Subsection A of
gross income 2.7-810,000 = 1.89M section 27] = 300,000 x 30%NIT=
120,000 90,000
 When the principal place of business is OUTSIDE the Philippines, at From the gross 810,000 goes to the
merong branch dito sa Pilipinas = RFC YAN (Resident Foreign income, you deduct government, and you 400,000 – 120,000 =
Corporation) the costs, yung mga keep the 1.89M. 280,000 So if you apply MCIT,
sweldo ng kasi nasa fourth year
 When the principal place of business is outside the Philippines, and The 120,000 goes to na from existence ng
empleyado etc
there is no branch here in the Philippines pero kumikita pa din = the government and corporation. So dito
NON-RESIDENT FOREIGN CORPORATION Yung mga costs mo, the 280,000 you get sa fourth year, the
to keep government has a
 What is the rate kapag long-term deposit? THE RATE IS 20% FWT assuming umabot choice.
 Ang rate naman sa royalties is 10% pero wala silang literary or ng 6M
musical rates kasi hindi naman sila pwede maging composers They can tax on the
8M – 6M = 2M taxable net income of
300,000 30%
WHAT ARE INTERCORPORATE DIVIDENDS? Yung 2M ito na yung thereof, or they can
itatax mo for NIT tax the corporation
 Sec 27 (D) (4) : Dividends received by a domestic corporation from 30% on the GROSS
another domestic corporation are NOT subject to tax INCOME
2,000,000 x 30% =
600,000 What if they choose
Q: If a corporation sells a capital asset not listed, what is the rate? to tax on the gross
The 600,000 goes to

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the government income? Paano naman ang rules ng resident foreign corporation?
So 2M- 600,000 = Ganito itsura niyan:  The principal branch is in the USA, but there is a branch here in the
1.4M Philippines, only the branch here in the Philippines is TAXABLE
12M X 2% [MCIT] = o Wala silang classification regarding real property kasi
Yung 1.4 M sayo nay 240,000
un they cannot own real property anyway
So pipiliin ng  Paano yung lipat and taxability ng dividends?
government MCIT o Kapag DC – DC: Exempt
siyempre na 240,000
ito yung mas malaki o Kapag DC – RFC: Exempt din
eh. Yun din  They are also subject to MCIT, but it is only the Philippine branch
nakalagay sa which is subjected to the MCIT
provision.
 Paano naman gagawin yung IAET nila?
What if in 2022, iba naging kwento ng income? o From the net income of the RFC if the retained earnings
are NOT given away to the stockholders, it is NOT subject
to the IAET
 12M is your gross income – 13.8M is your costs, sweldo = -1.8M
 But if they give the retained earnings to their
yung sagot, lugi ka naman sa case na ito.
stockholders, the SH receive them as
 Paano taxability ng government? Ganon pa din
DIVIDENDS
o - 1.8M x 30% = 0 NIT, walang matatax yan sa NIT kasi
o So ano mangyayari? Ang ginagawa kasi ng RFC, ireremit
wala naman yang kinita eh.
nila sa principal branch nila yung kinita ng RFC sa
o So paano kikita gobyerno dito?
principal branch sa ibang bansa
o Mag tax pa din sila ng MCIT on the gross sa 12M
o What are BPR? Under section 28 A(5): Branch profit
o So 12 M x 2% = 240,000 yan ang kukunin nilang tax so
remittances is any profit remitted by a branch to its head
kahit wala ng kita yung company, pwede pa din sila mag
office shall be subject to tax of 15% which shall be based
MCIT. Kita or lugi, MCIT pa rin
on the total profits applied or earmarked for remittance
 Kailan ba nangyayari tong MCIT Na ito? It begins from the 4 th year
without any deduction for the tax component thereof
from commencement of existence hanggang nagooperate na siya,
(EXCEPT: Those activities which are registered with
may karapatan na gobyerno mamili kung MCIT or NIIT, pero pinipili
Philippine economic zone authority)
lang ang MCIT kapag mas mataas ang MCIT kaysa sa NIT
 Tax shall be paid under section 57& 58 of this
IMRPOPERLY ACCUMULATED INCOME TAX
code
 Ano ba yung laman ng section 57? &
 The improperly accumulated earnings tax imposed in the preceding
58?
section shall apply to every corporation formed or availed for the
 Pero yung interests, dividends, rents, royalties
purpose of avoiding the income tax with respect to its shareholders
including remuneration of technical services,
or the share holders of any other corporation by permitting
salaries, wages, premiums, annuities,
earnings and profits to accumulate instead of being divided or
emoluments or other fixed or determinable
distributed [Basis: Sec 29 B (1)]
annual, periodic & casual gains, profits, income
 Who are exempted from IAET? [Basis: Section 30 B (2)] and capital gains received by a FOREIGN
o Publicly held-corporations [gobyerno to, including corporation from all sources taxable WITHIN
GOCCs] the Philippines shall NOT be treated as branch
o Banks and other non-bank financial intermediaries and profit remittances UNLESS the same are
o Insurance companies [if all risks are insured against, effectively connected with the conduct of its
benefits din kailangan may pondo ito] trade or business in the Philippines
 They are required to retain earning because of
 So ganito ang application:
the nature of the business that they have
o Kapag di niremit, magbebenefit ang gobyerno
o Pag nag remit palabas sa ibang bansa sa principal place of
 Ito application niyan si XYZ (Domestic corporation) with business from the RFC itatax ka ng 15% doon sa pag
stockholders remit ditto sa pilipinas pero sa USA kailangan ka din itax
ng hindi bababa sa 15%
o Revenues [ito yung mga kinita mo] – Costs of sales[ito  Ano mangyayari kapag below 15% ang tinax ng
yung puhunan mo] = gross income USA?
 Ang remedy ng gobyerno, since
o Gross income – deductions [ito na yung mga sweldo ng
ayaw nila madaya itatax na nila ng
empleyado, discounts, returns] = Net income
BPR ng 30% HINDI NA 15% LANG
o Hanggang sa nasa pilipinas ang kinikita ng RFC at ayaw
o From the net income, pwede ito hatiin sa retained
niya iremit yun, 30% ng 30% every year ang tax sa BPR
earnings and surplus
NON-RESIDENT FOREIGN CORPORATION
 Surplus: amount of money or assets invested in  Ang NRFC walang branch sa pilipinas, nasa ibang bansa ang
the company by shareholders principal place of business pero kumikita pa din ditto sa pilipinas
 Retained earnings: profits made by the  For A & B, Income and Passive income the rate is GIT 30%
corporation that has NOT yet been paid to its  Kapag under C naman FWT, Kapag under D wala, kasi bawal din sila
shareholders mag own ng real property dito sa pilipinas
o Kapag si XYZ corporation nagdamot, ayaw niya ibigay sa
 Ano naman ang rate sa intercorporate dividends?
stockholders niya yung yung retained earnings [kasi
o DOMESTIC – NON-RESIDENT FOREIGN CORPORATION:
share dapat yun ng stockholders], ITATAX NGAYON NG
FWT 15%
GOBYERNO yung ayaw mo ibigay sa stockholders
 Meron ba silang IAET & BPRT? WALA. Wala na nga silang branch
 Halimbawa 10M yung retained earnings, hindi
ditto sa pilipinas eh.
pinamigay magiging IAET na yan. So 10% on
the 10M ang rate
o Ano mangyayari naman kapag pinamigay niya sa
stockholders? Kapag pinamigay na niya sa stockholders Section 30 exemptions from tax on corporations
niya, ang tawag na doon DIVIDENDS, so yung rate ng  The following organizations shall NOT be taxed under this title in
domestic corporation sa dividends is = FINAL respect to income received by them “as such”
WITHHOLDING TAX 10% under section 24 (B) o Anong ibig sabihin ng “as such na yan” if the income was
derived from income coming from the main purpose for

MTAC 2019
which the corporation under this enumeration is created,
HINDI SIYA SUBJECT TO TAX APPLICATION OF SECTION 30
 This is the enumeration
o (A) Labor, agricultural or horticultural organization not  Charitable institutions, churches, convents, mosques – All their LBI=
organized principally for profit Land, buildings and improvements, ADE [Actually, Directly and
o (B) Mutual savings bank NOT having a capital stock exclusively used] for CRE [Charitable, religious, educational
represented by shares, and cooperative bank without purposes] are exempt from REAL PROPERTY TAXES
capital stock organized and operated for mutual purposes o SECTION 28 (3) Charitable institutions, churches and parsonages
and without profit or convents appurtenant thereto, mosques, non-profit cemeteries,
o (C) A beneficiary society, order or association operating and all lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational purposes
for the exclusive benefit of the members such as a shall be exempt from taxation.
fraternal organization operating under the lodge system,  Under section 30 (E) naman of the NIRC, Lahat ng kinita ng
or a mutual aid organization by ees providing for the charitable institutions walang tax in pursuant to the purpose na
payment of life, sickness, accident or other benefits kinita nila
exclusively to the members of such society, order, or
 Under the last paragraph of section 30, doon naman sila PWEDE
association, or non-stock corporation or their
maging taxable
dependends;
o (D) Cemetery, company owned and operated exclusively
for the benefit of its members
BUILDING
o (E) Non-stock corporation or association organized and
Jollibee
operated exclusively for religious, charitable, scientific,
BUILDING
athletic or cultural purposes, or for the rehabilitation of
veterans, no part of its net income or asset shall belong to Mcdo
or inure to the benefit of any member, organizer, officer
or any specific corporation HOME FOR THE AGED
o (F) business league, chamber of commerce or board of
trade, not organized for profit and no part of the net KFC
income which inures to the benefit of any private May Parking lot
stockholder or individual milktea
o (G) Civic league or organization not organized for profit pa ditto
but operated exclusively for the promotion of social
welfare
o (H) A non-stock, non-profit educational institution  How do you know muna that is is NON-STOCK/NON-PROFIT
o (I) A government educational institution EDUCATIONAL INSTITUTION? Tignan mo yung articles of
o (J) Farmers’ or other mutual typhoon or fire insurance incorporation, kapag may stock holders for profit
company, mutual ditch or irrigation company, mutual or o FOR PROFIT & FOR STOCK = May board of directors
cooperative telephone company, or like organization of o NON-STOCK & NON-PROFIT = WALANG BOARD OF
purely local character, the income of which consists solely DIRECTORS WALANG DIVIDENDS
of assessments, dues and fees collected from members for  From the drawing, which is exempted from REAL PROPERTY TAX?
the sole purpose of meeting its expenses o Under section 28 (3) ng constitution, all Lands, Buildings
o (K) Farmers, fruit growers or like association and and improvements, actually directly and exclusively used
operated as sales agent for the purpose of marketing the for charitable, religious and educational purposes are
products of its members and turning back to them exempt from RPT
proceeds of sales, less the necessary selling expenses on o So lahat ng nasa drawing exempted, except si MCDO, KFC
the basis of the quantity of produce finished by them Jollibee kasi di naman sila ADE, CRE, HENCE TAXABLE
o Notwithstanding the provisions in the preceding SILA UNDER RPT
paragraphs, the income of whatever kind and character of  Isa bang basis ng exemption ng NSNP is under Section 234 of the Lgc
the foregoing organizations from any of their properties  SEC. 234. Exemptions from Real Property Tax. - The following are
REAL or PERSONAL or from any of their activities exempted from payment of the real property tax:chanrobles virtual
conducted for profit, regardless of the disposition made of law library
such income shall be subject to tax imposed under this code (a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
DISCUSSION OF ATTY LUMBERA: granted, for consideration or otherwise, to a taxable person;
 Yung mga nasa enumeration na domestic corporations nay an (b) Charitable institutions, churches, parsonages or convents
 They were all made for non-stock, non-profit purposes iba iba ang appurtenant thereto, mosques, nonprofit or religious cemeteries
primary purpose nakalagay naman sa enumeration yung primary and all lands, buildings, and improvements actually, directly, and
purpose eh exclusively used for religious, charitable or educational purposes;
 INCORPORATION (c) All machineries and equipment that are actually, directly and
o Stock – lahat ng kita dividends, meaning may exclusively used by local water districts and government-owned or -
stockholders and merong board of directors controlled corporations engaged in the supply and distribution of water
o Non-stock – no dividends because all income is with the and/or generation and transmission of electric power;
corporation, hindi napupunta sa particular na tao [sa (d) All real property owned by duly registered cooperatives as provided
stock kasi napupunta sa particular na tao] wala din itong for under R. A. No. 6938; and
stockholders, BOARD OF TRUSTEES lang ang meron (e) Machinery and equipment used for pollution control and
 The nature of the corporation is for the benefit of members or the environmental protection. Except as provided herein, any exemption
benefit of others from payment of real property tax previously granted to, or presently
 So, saan sa lahat ng kinikita nila? Saan sila libre? enjoyed by, all persons, whether natural or juridical, including all
o Doon yan sa mahuhulog sa “as such” – income for which government-owned or -controlled corporations are hereby withdrawn
each primary purpose was created, ito ang libre sa buwis upon the effectivity of this Code.
under column A sa income tax nila
 Yung last paragraph ng section 30 yung “Notwithstanding….” Paano naman ang rules paggdating na asa income?
o Ibig sabihin non, lahat ng kinita nila mula sa property nila  Home for the aged made Christmas cards, binenta nila ito. Kumita
whether real or personal, regardless of disposition sila ng 3 million.
[meaning regardless saan ginamit] they are NOT exempt o Is it income? YES.
from taxation o Is it without or within? It is income WITHIN
MTAC 2019
o Is it subject to income Tax? istiutuion or organization, provided, however
 NO. It is not. that not more than 30% of said gifts shall be
 Why? Kasi doon siya mahuhulog sa “as such” used by such done for administration
because the income was realized for the purposes.
principal purpose for which the organization  Ano ba yung administration
or corporation was made, HENCE. Exempted purposes na pinaguusapan diyan?
 Yuung home for the aged, tumanggap ng rentals amounting to o Yan yung ginamit mo ng
500,000 pasweldo, bayad ilaw,
o Is it income within? YES bayad tao, kuryente lahat
o Is it taxable? YES o So kapag di mo ginamit
 What is the basis? Last paragraph of section 30 for administration
 “Notwithstanding…. purposes yan
o The point is, lahat ng  So pag sakto sa 30% exempted pa
kinita nila from their real din
property or personal o Under section 87 (Donor’s Tax)
property, or any activity  (D) All bequests, devises, legacies or transfers
for profit so long as di na to social welfare, cultural and charitable
in pursuant to the institutions, no part of the net income of which
primary purpose created inures to the benefit of any individual,
is subject to income tax provided that not more than 30% of said
o WHAT IS THE TAX DUE? NIT, 30% Yung rate na ng bequests, devises legacies or transfers shall be
domestic corporations used by such institutions for administration
 What about bank deposit: 3.5 M, kumita ng 2,000 sa interest. This is purposes
income. Is it income within? Yes.  So ayan na lahat ng relevant provisions, ganito mo siya iaapply.
o Is it taxable? YES. It is taxable o Yung 1M na binigay ni EX, Gift yun eh. So hindi taxable
o What is the rate? FWT. 20% It is classified at passive yung tumanggap ang itatax is yung NAGBIGAY. Si X.
income, ang rate ng DC for passive income is 20% o So X is Generally not subject to tax. However, kapag
o Why is it taxable? Again, HINDI NAMAN ITO INCOME FOR ginamit yung more than 30% doon sa pagbayad ng
THE PRIMARY PURPOSE FOR WHICH THEY WERE administration fees TAXABLE NA.
CREATED, so doon sila sa last paragraph ng section 30  If it was a donation inter vivos [donation
mahuhulog – Hence, they are taxable habang buhay pa si X] the taxability will be
 Yung 500,000 na kinita sa renta tsaka yung 2,000 pesos na kinita sa based on Donor’s tax under section: 99&101
passive income kahit na gamiting para pinturahan yung home for  Kapag di naman ginamit yung more than 30%
the aged are NOT exempt from tax for admin fees, EXEMPT
o Sabi kasi sa section 30, REGARDLESS of disposition…. So o So what is 30% of 1M, it is 300,000. So kapag lumampas
kahit saan pa niya gamitin, basta kinita niya NOT for the ka sa 300,000 pesos sa administration purposes
principal purpose for which it was created hindi yan TAXABLE NA for 6% computed based on the total gifts in
exempted from tax excess of 250,000 [this is applicable in donation inter
o Yung renta ba may connection bay un sa principal vivos]
purpose ng home for the aged? Hindi diba? Kahit yung o Paano naman kapag MORTIS CAUSA donation? Yung
interests, walang kinalaman sa principal purpose provisions ng ESTATE TAX NAMAN ANG IAAPPLY.
 Hence, doon sa 1m, if not more than 30% was
NEXT SITUATION used for admin purpose. NOT TAXABLE
 X gave 1m for the home for the aged as a gift  If more than 30% of the 1m was used for
o From the point of view of the home for the aged, this is admin purposes, TAXABLE na siya
INCOME  So in the foregoing, ano ang remedy ni DONOR para hindi nalang
 Is it taxable? WELL, It is actually a GIFT, so it siya magbayad ng tax? Kasi siya na nga nagbigay, siya pa din itatax?
does not fall under “as such” it falls under the o REVOKE THE DONATION
realm of donations
 So dito, it is income from the point of view of Religious organization
the receiver but there is NO INCOME TAX
 Tignan muna natin yung relevant provisions PARSONAGE
o Under Section 32 (B)(3)
 Gifts, bequests and devises: The value of MCDO
property acquired by gift, bequest, devise or KFC
descent: provided however, that income from
such property, as well as gift, bequest, devise,
descent of income from any property, in cases
of transfers of divided interest shall be
included in gross income JOLLIBEE Parking lot Office
o Under section 99 DONORS TAX
 (A) The tax for each calendar year shall be six
percent computed on the basis of the total gifts MILKTEA
in excess of 250,000 pesos exempt gift made
during the calendar year
o Under section 101 EXEMPTION ON CERTAIN GIFTS  So diyan sa drawing, ang religious organization is exempted REAL
 (A) Gifts made to or for the use of the National PROPERTY TAX, so long as the LBI are ADE used FOR CRE purposes
Government of any entity created by any of its o BASIS: Section 28 (3) of 1987 constitution
agencies which is not conducted for profit or to o So yung mcdo, kfc, Jollibee and milktea, di yan exempted
any political subdivision of the government from RPT
 (B) Gifts in favor of educational and/or  What if kumita ang simbahan [lahat pala ng religion, organized as a
charitable religious, cultural or social welfare domestic corporation]
corporation, institution, accredited non- o Yung pamisa ni simbahan, kumita ng 3M
government organization, trust or  Taxable? YES.
philantrophic organization or research
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 Subject to tax, NO. Basis: section 30 because  RPT
income “as such”- again, meaning it was made  TCD
for the primary purpose for which it was  Revenues and assets are exempted: THIS IS
created CONSTITUTIONALLY GUARANTEED pero sa
o Yung rentals na kinita ng simbahan sa mga pinarentahan religious, charitable institutions, it is only NIRC
niya? guaranteed
 Is it subject to tax? YES.  So halimbawa, UST is a NSNPEIT: may parking lot, may garden, may
 Doon naman mahuhulog sa last carpark na andoon business establishments like mcdo, etc etc
paragraph ng section 30, na lahat ng o So, first under RPT ano lang ang exempted? LAHAT
kita from property, real or personal naman exempted ang HINDI lang is yung laman ng
or any activity for profit na was NOT carpark, hindi naman kasi siya ADE for educational
from the primary purpose for which purposes, kaya kailangan pa din niya magbayad ng tax
it was created is subjected to o If RPT & Not ADE taxable, pero if yung INCOME is ginamit
INCOME TAX regardless of na sa ADE for educational purposes, The income is THUS
disposition EXEMPTED
o RATE? 30% NIT, DC rate  Ito kasi yung ginaguarantee ng constitution
kais nga DC ang  So medyo may conflict between section 30
classification ng religious tsaka yung constitution, so regarding this
organization siyempre constitution is the supreme law of
o What about on interests? IS IT TAXABLE? the land, so the constitution governs
 Yes  Kaya ganyan na siya nireconcile: Kapag RPT
 What is the rate? FWT OF 20% = yun ang rate tapos ADE, taxable pero kapag ginamit yung
ng domestic corporation sa interests eh income na yun for ADE educational purposes,
YUN EXEMPTED na ang income!!!!!!!
 Si father nagpabless ng kotse, aabutan mo si father sa sobrang  So halimbawa si UST kumita ng tuition fee na 30M, tapos kumita ng
daming kotse na binless niya umabot ng 150,000 pesos rental income na 5M
o Is this income? YES o Yung 30M na tuition fee, exempt din under sec 30 (H) pati
o Is it taxable? YES under the constitution kasi income ito as such, again
 He realized income in the exercise of his meaning for the PRIMARY PURPOSE yung kinita niya for
profession, this is a consideration hence, if it which it was created
does not exceed 3M annually, may choice si o Yung 5M na rental income, Hindi exempt under section 30
father kung 8% or NIT Last paragraph pero exempt under the constitution
 If more than 3M, default NIT na  So under section 30, Last paragraph NIT 30%
 If X gave a gift amounting to 1m to the religious institution  However, in constitution it is NOT the source, it
o It is generally exempted is the USE. So yung 5M na rental income kapag
 If Donation inter vivos: Exempted under ginamit siya for purposes na ADE used for
section 101 (2) = DONOR’S TAX educational purposes, WALA NA TAX. Pero
 If donation mortis causa: exempted under kapag hindi, eh di ayun taxable pa din
section 87 (D) = ESTATE TAX  This is best illustrated in DLSU VS CIR
o When is it not exempted?
 It is not exempted if more than 30% was used
for administration purposes
COMMISSIONER OF INTERNAL REVENUE, vs. DE LA SALLE
 Hence, if ginamit yung more than 30% of the
UNIVERSITY, INC.
gift for administration purposes, TAXABLE
 If Intervivos, taxable under donor’s
tax G.R. No. 196596, November 09, 2016
 If mortis causa, taxable under estate
tax

NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS


 Under ART 14, Sect 24 (3) The Commissioner submits the following arguments:

(3) All revenues and assets of non-stock, non-profit educational DLSU's rental income is taxable regardless of how such income is derived,
institutions used actually, directly, and exclusively for educational used or disposed of. DLSU's operations of canteens and bookstores within
purposes shall be exempt from taxes and duties. Upon the dissolution or its campus even though exclusively serving the university community do
cessation of the corporate existence of such institutions, their assets shall not negate income tax liability.
be disposed of in the manner provided by law.
Article XIV, Section 4 (3) of the Constitution and Section 30 (H) of the Tax
Proprietary educational institutions, including those cooperatively Code
owned, may likewise be entitled to such exemptions subject to the
limitations provided by law including restrictions on dividends and “the income of whatever kind and character of [a non-stock
provisions for reinvestment. and non-profit educational institution] from any of [its] properties, real
or personal, or from any of (its] activities conducted for profit regardless
(4) Subject to conditions prescribed by law, all grants, endowments, of the disposition made of such income, shall be subject to tax imposed by
donations, or contributions used actually, directly, and exclusively for this Code.”
educational purposes shall be exempt from tax
The Commissioner posits that a tax-exempt organization like DLSU is
o all revenues and assets, including land, building and exempt only from property tax but not from income tax on the
improvements, ADE used for educational purposed are
rentals earned from property. Thus, DLSU's income from the leases of
EXEMPTED from taxes
 WHAT DOES IT COVER? its real properties is not exempt from taxation even if the income would
 Internal revenue Taxes be used for educational purposes.41

MTAC 2019
DLSU stresses that Article XIV, Section 4 (3) of the Constitution WHAT ARE THE RULES IF IT IS A PROPRIETARY EDUCATIONAL
is clear that all assets and revenues of non-stock, non-profit educational INSTITUTION AND HOSPITALS
institutions used actually, directly and exclusively for educational
purposes are exempt from taxes and duties.  The rules on RPT is the same, the exception falls under SEC 234 of
LGC, as long as the LBI are ADE educational purposes, TAX EXEMPT
on RPT; No constitutional guaranty in this case
ISSUE: Whether DLSU's income and revenues proved to  Under Section 27 (B) Proprietary Educational institutions and
have been used actually, directly and exclusively for educational purposes hospitals which are NON-PROFIT shall pay a tax of 10% on their
are exempt from duties and taxes. taxable income
o EXCEPT those covered under subsection D
 Section 27 (D) Rate of tax from certain passive
income
RULING: YES.  Interest deposits, monetary benefit
from deposit substitutes and from
The requisites for availing the tax exemption under trust funds and similar
Article XIV, Section 4 (3), namely: (1) the taxpayer falls under the arrangements and royalties shall be
classification non-stock, non-profit educational institution; and (2) taxed at 20% FWT is hereby
the income it seeks to be exempted from taxation is used actually, imposed upon the amount on
directly and exclusively for educational purposes. interest on currency bank, deposit
and yield or any other monetary
A plain reading of the Constitution would show that Article XIV,
benefit from deposit substitutes and
Section 4 (3) does not require that the revenues and income must have
from trust funds, similar
also been sourced from educational activities or activities related to the
arrangements received by
purposes of an educational institution. The phrase all revenues is
DOMESTIC corporations and
unqualified by any reference to the source of revenues. Thus, so long as
royalties derived within the
the revenues and income are used actually, directly and exclusively for
Philippines
educational purposes, then said revenues and income shall be exempt
o So kapag galling sa
from taxes and duties.
foreign corporation, NIT
tax 30% rate on DC
Thus, when a non-stock, non-profit educational institution
 That interest income derived from a
proves that it uses its revenues actually, directly, and exclusively for
domestic corporation from a
educational purposes, it shall be exempted from income tax, VAT, and
depository bank under the expanded
LBT. On the other hand, when it also shows that it uses its assets in the
foreign currency deposit system
form of real property for educational purposes, it shall be exempted from
shall be subject to a final income tax
RPT.
at the rate of 15%
o So kapag rate of interest,
We further declare that the last paragraph of Section 30 of the
20%FWT kapag galling
Tax Code is without force and effect for being contrary to the Constitution
domestic amd kapag peso
insofar as it subjects to tax the income and revenues of non-stock, non-
o Kapag foreign currency
profit educational institutions used actually, directly and exclusively for
15%
educational purpose. We make this declaration in the exercise of and
o Provided, that if the gross income from unrelated trade,
consistent with our duty to uphold the primacy of the Constitution. We
business or other activity EXCEEDS 50% of the total gross
stress that our holding here pertains only to non-stock, non-profit
income derived by such educational institutions or
educational institutions and does not cover the other exempt
hospitals from all SOURCES the tax prescribed under
organizations under Section 30 of the Tax Code.
SUBSECTION (A) [meaning 30% NIT na ang tax] shall be
For all these reasons, we hold that the income and revenues imposed on the ENTIRE TAXABLE INCOME
of DLSU proven to have been used actually, directly and exclusively  This means that the GR is 10% lang ang itatax,
for educational purposes are exempt from duties and taxes. pero ang rate ng passive income subsection D
ang susundin so yung mga royalties, interests
mo FWT 20% kapag galling sa DC, kapag
galling sa foreign corporation naman NIT 30%
 So in this case, the income na kinita ng DLSU from the parking fees  Tapos, diba may total income ka yearly?
were exempted from tax because they were used ADE for KAPAG yung kinita mo sa total income mo,
educational purposes yung lagpas 50% ng income na yun galling sa
unrelated trade, business or activity, NIT 30%
na ang rate ng tax mo
o “Unrelated trade, business or other activity” means any
UST IS A PROPRIETARY EDUCATIONAL INSTITUTION trade, business or other activity, the conduct of which is
not substantially related to the exercise of performance
 Hence, it may likewise be exempted by such educational institution or hospital of its pimary
 You are not generally exempted, only if there is a law exempting you purpose or function.
from paying tax o “proprietary educational institution” – is any private
 NSNPEI are exempted under Section 30 (H) school maintained and administered by private
individuals or groups with an issued permit to operate

MTAC 2019
from the DEPED, DECS, CHED or TESDA as the case may
be, in accordance with existing laws and regulations
 Ust being a PEI, yung income niya is not covered by SEC 30, It is
covered under Section 27 (B)
 UST as a proprietary educational institution, kumita siya ng 30 M for CASE: Comm. Of Internal Revenue vs. St. Luke’s Medical Center, Inc.
tuition fee and 5M for rental (G.R. No. 195909-195960; Sept. 26, 2012)
o Classify natin. Yung 30m for tuition fee, RELATED. Yung
5M UNRELATED Facts: St. Luke’s (respondent) is a hospital organized as a non-stock and
o Magkano total income? 35M ang total income ni UST non-profit organization. Sometime in 2002, BIR assessed St. Luke’s
 Ano ang 50% ng 35M? = 17.5M deficiency taxes amounting to P76M for 1998 which was subsequently
 If income from unrelated trade or business reduced to P63M during trial in the CTA. St. Luke’s protested and filed an
does not exceed 50% ang taxable income is administrative protest with BIR but was not acted by the latter within the
10% under section 27 (B) 180 period thus reaching to the CTA.
 Pero if it exceeds the 50%, taxable siya as NIT
30% Under subsection A of section 27 According to BIR, Section 27B of the NIRC imposing a 10%
preferential tax rate applies to St. Luke’s. Its reason is that it amends the
UST IS A STATE UNIVERSITY exemption on non-profit hospitals and which prevails over the exemption
on income tax granted under Section 30 (E and G) for non-stock,
 There is no constitutional provision relating to the taxability of the nonprofit charitable institution and civic organizations promoting social
government welfare. It further claimed that St. Luke’s was actually operating for profit
 This area is OWNED by the government, if you say that it is a state because only 13% came from charitable purposes and that it had a total
university revenue of P1.73B from patient services in 1998.
 Kumita siya ng 30M from tuition fee
o Is it income? YES Meanwhile, St. Luke’s contended that its operating income only
o Is it tax exempt? Yes, it falls under AS SUCH [Section 30 I] totaled P334 M (less the operating expenses) and out of that P218M
 Kumita siya ng 5M rentals (65%) made up its free services and further claimed that its income does
o Is it income? YES not inure to the benefit of anyone. Furthermore, it argued that it falls
o Is it tax exempt? Yes, falls under last paragraph of Section under the exception provided under Sec. 30 (E) and (G) of NIRC and
30. making of profit per se does not destroy its tax exemption.
 Under RPT naman, ano ang rules bilang UST is a state university.
Lahat din exempted, basta ADE for educational purposes, so kung CTA En Banc ruled in favor of St. Luke’s exemption under Sec.
may carpark din siya na may mcdo yung carpark nay un SUBJECT TO 30 and reiterated its earlier fiding in another case identifying St. Luke’s as
real property tax [BASIS: Sec 234 of LGC] a charitable institution. CTA adopted the test in Hospital de San Juan de
 All real properties of the government of the Philippines are EXEMPT Dios, Inc. v. Pasay City, which states that "a charitable institution does not
except when the BENEFICIAL use pertains to a non-exempt entity. lose its charitable character and its consequent exemption from taxation
The carpark is not exempt, because the beneficial use pertains to a merely because recipients of its benefits who are able to pay are required
non-exempt entity. to do so, where funds derived in this manner are devoted to the
 The NSNPEI has the best situation in this case, this is because the charitable purposes of the institution . . . ." (The generation of income
government gives it the best tax exemptions because it thanks such from paying patients does not per se destroy the charitable nature of St.
NSNPEI because the government cannot provide the education that Luke's.)
the people need
 The government is being taxed, pero it is in the exercise of its
proprietary function
Issue: WON St. Luke’s is liable for deficiency income tax under Sec. 27 (B)
o Jus imperii – Governmental function; not subject to suit
o Jus gestionis - Non- governmental function; subject to of the NIRC which imposes a 10% preferential rate.
suit

WHAT ABOUT CHARITABLE HOSPITALS vs PROPRITARY HOSPITALS


Held: Petition partly granted. YES, St. Luke’s is liable under Sec. 27 (B) of
the NIRC.
 Proprietary Hospital: same rules under Section 27 (B) Hence, yung
income is Generally taxable at 10%
Under Sec. 30 (E) of the NIRC provides that a charitable institution
o Yung passive income is taxable under Subsection D
must be: (1) non-stock corporation or association; (2)ORGANIZED
 20% on interests, royalties etc from DC
EXCLUSIVELY for charitable purposes; (3) OPERATED EXCLUSIVELY for
 If from FC [NIT, 30%]
charitable purposes; (4) No part of its net income or asset shall inure to
 If interests tapos foreign currency 15%
the benefit of any member , officer or any person. Under the last
provided na DC din nagbigay
paragraph of Sec. 30 of the NIRC if a tax exempt charitable institution
o Pero, kapag yung “unrelated trade, business,
conducts "any" activity for profit, such activity is NOT TAX EXEMPT even
income/profit niya” from the total taxable income is
as its not-for-profit activities remain tax exempt. It simply means that
sobra sa 50% ang tax na babayaran na niya is 30% NIT
even if a charitable institution organized and operated exclusively for
under (A)
charitable purposes is nevertheless allowed to engage in “activities
o Kapag RPT, basta ADE used for CRE purposes exempted
conducted for profit” without losing its tax exempt status for its no-for-
in RPT
profit activities. However, as a consequence "income of whatever kind
 Kapag charitable hospital, kapag income “as such” EXEMPTED siya,
and character" of a charitable institution "from any of its activities
under section (30) (E)(G) if not income as such, it falls under section
conducted for profit, regardless of the disposition made of such
30 Last paragraph, taxable siya kung ganon

MTAC 2019
income, shall be subject to tax." (Sec. 30, last par.). Therefore,
services rendered to paying patients are activities conducted for profit
and thus taxable under Sec. 27 (B) of the NIRC.

St. Luke's fails to meet the requirements under Section 30 (E) and
(G) of the NIRC to be completely tax exempt from all its income.
However, it remains a proprietary non-profit hospital under Section
27 (B) of the NIRC as long as it does not distribute any of its profits to its
members and such profits are reinvested pursuant to its corporate
purposes. St. Luke's, as a proprietary non-profit hospital, is entitled to
the preferential tax rate of 10% on its net income from its for-profit
activities.

Notes:

1. TEST OF CHARITY - as a gift, to be applied consistently with


existing laws, for the benefit of
an indefinite number of persons, either by bringing their
minds and hearts under the influence of education or religion,
by assisting them to establish themselves in life or [by]
otherwise lessening the burden of government." (In other
words, charitable institutions provide for free goods and
services to the public which would otherwise fall on the
shoulders of government.)
2. Solely is synonymous with EXCLUSIVELY. (Lung center of the
Phil.)
3. Proprietary- means private.
4. Non-profit- no net income accrues to the benefit of any person
and with all its income devoted to the institutions purpose and
all its activities CONDUCTED NOT FOR PROFIT.

MTAC 2019