TSN Atty Lumbera Taxation Law Lecture Advance Prebar

Taxation Law Lecture Atty Rizalina Lumbera Jurists' Online Advance Pre-Bar
Review Lecture
Illustration of what Taxation is
Kinds of Taxation:
(1) National Taxation = covered by NIRC- TRAIN Law
(2) Local Taxation
-> inclusive of the Local Government Code of 1991
(3) Tariff & Customs Duties = di daw kasama sa coverage ng bar exam :)
NOTE: Separate ang National and Local Taxation in view of the double taxation
ON CASES/JURISPRUDENCE OF TAX: ‘Di masyadong nagdedeviate from the law

‘yong mga cases, unlike other subjects. Masyadong explicit yung provisions ng
Taxation. So when it comes to cases, Hindi nyo kailangan aralin lahat ng cases,
napakaraming kaso pero pag tinignan nyo, pare-pareho lang. It always boils down to
the basic principle in Tax and naka-incorporate ang mga ito sa batas.
RULE ON THE TAX CODE:
(1) In case of doubt, whether to impose or not to impose, do not levy, because taxes are
burdens.
(2) In case of exemptions, they are construed against the taxpayers.
NATIONAL TAXATION
-> included in the National Internal Revenue Code and the Train Law = there are only 7
internal revenue taxes of various kinds:
Transcription by: Via (@itsvictoria2u) Page 1 of 226

Review Lecture
A. First part: TAXES
~> Income Tax
~> Value Added Tax (VAT)
*habang ang tao ay buhay na taxes:
~> Donor’s Tax
~> Percentage Tax
~> Excise Tax = tax on the manufacture, production and importation
~> Documentary Stamp Tax = this is the tax whether you’re engaged in trade or
business when you execute a document since may transaction; ‘yong document na
sinubject mo sa doc stamp tax ay may transaction, at depende pa sa kung anong
transaction ‘yon, pwede pa syang i-tax ng any of the other types of taxes.
*pag patay na yung tao na tax; ipapataw sa estate mo by reason of your death:
~> Estate Tax
= re-classification:
(a) VAT + Percentage Tax = Business Tax
(b) Donor’s Tax + Estate Tax = Transfer Tax; the tax is on the transfer.
B. Second part: REMEDIES
Kapag nangolekta ang Gobyerno nung 7 na ‘to, merong remedies and these provides
for the procedures kung paano kinokolekta ang mga taxes na ‘yan.
There are two kinds of Remedies for the:
(1) Government against the taxpayers
(2) Taxpayers against the government

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Kasi wala namang kwenta ‘yang mga taxes na ‘yan kung hindi kokolektahin ng
Gobyerno.
C. BUREAU OF INTERNAL REVENUE RULINGS
-> the following forms part of the law of the land and interprets the NIRC:
(1) Revenue Regulations
(2) Revenue Memorandum Circular
(3) Revenue Memorandum Order

Review Lecture
LOCAL TAXATION
A. Taxes:
(1) Ordinary local taxes
-> local taxes indicated in the LGC.
(a) Tax on transfer of real property ownership (Sec 135)
(b) Tax on business of printing and publication (Sec 136)
(c) Franchise tax (Sec 137)
(d) Tax on sand, gravel and other quarry resources (Sec 138)
(e) Professional tax (Sec 139)
(f) Amusement tax (Sec 140)
(g) Annual fixed tax for every delivery truck or van of manufacturers or producers,
wholesalers of, dealers of, or retailers in, certain products (Sec 141)
-> in addition to the ordinary local taxes pursuant to the provisions of the Code, meron
pang pwedeng ipasang batas ang mga Local Sangguniang (hindi ito enumerated sa
Local Government Code, pero authorized ang Local Sanggunian to levy these kind of
taxes)
(2) Real Property tax

- Amilyar
B. Remedies
- Nangongolekta kaya may proseso

- mga solusyon or remedyo kung pano nangongolekta ang gobyerno
Two types:
(1) Local Government Units (LGU) against taxpayers

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(2) Taxpayers against the LGUs
C. Sanggunian Resolutions or Ordinances
—————————————————————————————————
MAIN OUTLINE
Application ng Tax Code sa buhay ng tao:
Kung tao o korporasyon ka, meron kang kita. Hindi pwedeng wala kang kita,
mamamatay ka kasi wala kang ipangagagastos.
Basta ikaw ay kumita, meron kaagad na Income Tax consequence.
Pag ang kinita mo ay dahil sa trade or business mo, meron kang kasunod na VAT or
Percentage tax, depende sa kinita mo.
Dahil ikaw ay kumikita, meron kang expense. Pag ikaw ay gumagastos, merong may
kumikita na iba. This is the revenue and expense cycle. Every time you earn, you have
to spend and you create income for others, the latter will also have to spend as well.
Infinite ito.

Review Lecture
KINDS OF TAXPAYERS:
A. BASED ON THEIR INCOME
(1) INDIVIDUAL TAXPAYERS (TAO)
Ikaw ay tao =
(1) Ikaw ay sumusweldo at ‘yon lamang ang pinagkakakitaan mo = Purely

Compensation Income Earner (empleyado ka); may employment contract because
of employer-employee relationship.
(2) Ang pinagkakakitaan mo lamang ay ang iyong trade or business (kahit Ilan pa ang
business mo, pagsasamahin lang ang pga kita mo doon) = Self Employed Individual
(3) And pinagkakakitaan mo lamang ay ang exercise of your profession = Self

Employed Professional
PCIE SEI/SEP
Engineer na nagtatrabaho para sa isang Engineer na may sariling mga kliyente at kumikita
engineering firm; pinapasweldo sya nung firm na ng dahil sa kanyang paggamit ng kanyang
‘yon. propesyon.
(4) Ang pinagkakakitaan mo ay ang iyong sweldo bilang isang empleyado at ang ‘yong
trade or business = Mixed Income Earner
(5) Ang pinagkakakitaan mo ay ang iyong sweldo bilang isang empleyado at ang
exercise of your profession = Mixed Income Earner
(6) Ang pinagkakakitaan mo ay ang iyong sweldo bilang isang empleyado, meron ka
ring sariling trade or business and at the same time, you exercise your profession (dito
daw si atty, ang babaeng walang pahinga XD) = Mixed Income Earner

Review Lecture
*to be considered as a Mixed Income Earner = dapat may element lagi ng
Compensation kasama either yung kita mo from trade or business / exercise of
profession or lahat.
(2) CORPORATE TAXPAYERS (ALL KINDS OF CORPORATIONS, GENERAL

PROFESSIONAL PARTNERSHIPS, PARTNERSHIPS, MUTUAL BENEFIT FUNDS,
ANY OTHER KIND OF ORGANIZATIONS OR CORPORATIONS REGISTERED WITH
THE SEC)
*main source of income of all corporations (presumably established for this purpose):
trade or business
Application ng Tax Code sa mga korporasyon: Syempre pag ikaw ay isang korporasyon,
ang pinagkakakitaan mo ay in accordance with the primary purpose stated in the
corporation’s Articles of Incorporation =
(1) Engaging in trade or business = Corporate Taxpayer

- dahil walang korporasyon na itinatayo para lang masabi na nakapagtayo ka ng
korporasyon; to operate in order to realize income)
- In accordance with the kind of activity that you have, you produce a kind of income
because of these activities.
(2) Kinds of Partnership:
(a) General Professional Partnership = one that is established for the purpose of
exercising the common profession of all the partners and no part of its income is
derived from trade or business.
- generally not subject to tax as a corporate taxpayer because GPP is exempted from
paying corporate income tax. Once all the deductions were deducted, the profits of
the partnership are distributed to each partner, then EACH PARTNER shall be
treated as an individual taxpayer who is either a SEP or SEI and will definitely be
subjected to income tax based on their shares in the partnership.
(b) General Co-Partnership = other than GPP
- generally subject to tax, since it is engaged in trade or business.

Review Lecture
B. BASED ON THE TAX CODE
(1) INDIVIDUALS:
(a) Resident Citizen
(b) Non-Resident Citizen
(c) Resident Alien
(d) Non-Resident Aliens Engaged In Trade or Business
(e) Non-Resident Aliens Not Engaged In Trade or Business
(f) Estates & Trusts

- Estate = upon death of decedent, there is transfer of properties from the decedent to
his heirs. Pero hanggang di pa actually natatransfer yung properties sa heirs, yung
estate muna yung nangangalaga doon, being a part of it. So for purpose of income
tax, an estate is an individual taxpayer. So pag kumita yung mga properties na yun
habang di pa sila actually natatransfer, si estate ang matatax at sya ang nagbabayad
nun.
- Trust = from the time the grantor creates the trust, it is held by a trustee, who is
under obligation to preserve the trust and subsequently transfer it to the beneficiary.
During the time na si trustee ang naghahawak nung trust, eh yung Trust mismo ang
individual taxpayer for purpose of income tax.
(2) CORPORATIONS:
(a) Domestic
(b) Resident Foreign
(c) Non-Resident Foreign

Review Lecture
Kind of activity + Type of Tax to be subjected to:
(a) Ikaw ay kumita (act of earning); once you engaged in an activity which produces
income = subject to income tax
(b) Engaged in trade/business, exercise of profession = subject to VAT & percentage

tax as the case may be.
Anong gagawin mo sa sweldo mo or nakuha mong pera? Syempre gagastusin mo!

Tandaan nyo, kapag ‘yang kinita ninyo ay itinago mo lamang sa bulsa mo at hindi ka
gumastos, Mamamatay kayo. Hindi pwedeng hindi ginagastos ang pera. Pag sinabi
mong gumastos ka, in English, this is expense. Dahil ikaw ay gumastos, dahil ikaw ay
bumili, mayroong kumita. ‘Yan ang cycle ng income. Kumita ka, gagastos ka
(expenses), ngayon ‘yang expenses mo creates income for another taxpayer. So lahat
tayo nagiging taxpayers.
Meron kang natira or savings. So anong gagawin mo sa savings mo? Either:
(a) ilalagay sa Bangko = pagdineposit mo sa bangko or in any other forms of deposits,

like investments, you create income and again, tax is paid.
(b) Assets (acquisition of real property or tangible personal property or intangible

personal property) = Pag ikaw ay bumili or you acquire these assets, then the seller
realizes income, in which again, tax is a consequence. It will always be a
consequence.
Nung kumita ka, gumastos ka, tapos may natira pa sa ‘yo. Ang tawag dun balance. So
sa balance mo, bumili ka ng:
(1) Real Property
(2) Tangible Personal Property
(3) Intangible Personal Property
In other words, the excess between your income and the expense ay lagi mong pera.
Either:

Review Lecture
(a) ipapambili mo ng mga asset = kapag ikaw ay bumili ng properties dahil ikaw ay may
capacity, aba may tax ‘yon.
(b) Ilalagay mo sa bangko = ‘yong interest mo sa deposit mo sa bangko ay kumita, may

tax ‘yon.
(c) Insurance or investments = may tax ang pagbili mo ng insurance, ‘cause you’re
buying goods.
(d) Shares of stocks = at ‘pag ‘yan ay kumikita, mayroon pang add-on na income tax.
POSSIBLE TAXES TO BE IMPOSED FOR THESE ACTIVITIES: Withholding tax,

Income tax
TAKE NOTE: Other than itong mga nabanggit na ito sa act of earning or sweldo or
kinikita mo mismo.
TRANSFER / DONOR’S TAX : Eh mayroon ka pang natira tapos napaka-bait mong tao,
ipinamigay mo ngayon ‘yong sobra. Subject ‘yong pagbibigay mo sa tax na ang tawag
ay Donor’s Tax. Inter vivos eto kasi buhay ka pa.
DOCUMENTARY STAMP TAX : Remember, sa lahat ng transactions mo, mayroon

tayong dokumento na ine-execute as proof of the transaction. Dahil may document,
babayad tayo ng Documentary Stamp Tax.
EXCISE TAX : Kung ikaw ay engaged in trade or business you may also be involved in
manufacturing and production. Pwedeng ikaw ang nagpoproduce para ibenta mo. Or
pwedeng ikaw ay tiga bili lamang tapos ibebenta mo. So if ikaw ay at the same time a
manufacturer and a producer, or an importer in the course of your trade or business,
aba ikaw ay may add-on na tax, eto ang Excise Tax.
ESTATE TAX : Kapag ikaw ay natigok, as in dead, may tax pa din… ‘yong Estate Tax.
Lahat ng properties mo nung nabubuhay ka pa at nung namatay ka, will be transferred
to your heirs by way of succession. In which case, meron tayong tinatawag na estate

Review Lecture
tax. Hindi ikaw mismo ang binubuwisan, kung hindi ‘yong estate mo ang nagbabayad
kasi s’ya yung nilalagyan ng buwis.
DOUBLE TAXATION IN THE BROAD SENSE : Napakarami namang buwis! Pero it can
happen na one particular transaction may be subjected to two or more types of taxes.
We call it double taxation in the broad sense. These internal revenue taxes are covered
by transactions and it depends on the nature of the transaction that you have para
malaman natin kung anong klaseng buwis ang babayaran.
So papaano papasok ang ordinary local taxes imposed by the Local Government
Code?
Pag meron kang trade or business, for sure subject ka sa ordinary local taxes. Tapos
pag meron kang property o bahay mo mismo, subject yan sa real property taxes.
MGA PINAKA IMPORTANTENG KONSEPTO, TAKE NOTE FOR INCOME TAX:
(1) Income-Expense Cycle:
Ikaw na taxpayer ay kumita, tapos ikaw ay gumastos. Sa paggastos mo, ikaw ay naging
isang buyer. Syempre dahil may buyer, mayroong seller. Si seller ay taxpayer din.
Every time you receive an income and you spend, somebody else realizes income and
in turn, he/she will spend, realizing income for another else and that he/she will spend it
again…
Ratio: You cannot be a seller if you did not become a buyer first. ‘Yong iba bibili at ‘yong
binili ay ibebenta. Pwedeng nung binili ko, buyer ako, expense side ko ‘yan. Pwedeng
‘yong same product ibinenta ko, or di kaya naman inimprove ko ‘yong product tapos
saka ko ibinenta ‘yong improved version.
BUYER ONLY & NOT A SELLER : BUT there are instances that you can just be a buyer
and not be a seller. This is in the case of compensation income earners, they received
money in the form of sweldo and they spend it, so buyer lang sila forever.

Review Lecture
(2) Taxable Period: always computed at 12 months (either calendar year or fiscal year)
- coverage: all transactions which happened within the taxable period.
- (x) Transactions which happened prior to or beyond the 12th month, are NOT
SUBJECT to the computation of income tax within that respective taxable period.
- When does a corporation declare kung ano ang taxable period na gagamitin nya? =
from the time of incorporation, during the filing certificate of registration and
corporation’s Articles of Incorporation dun sa SEC. The corporation must file short
returns with the BIR kung gusto nitong magshift ng taxable period within the same
year.
- Kinds of taxable period as per Tax Code:
(a) calendar year = 12 months is from January 1 to December 31 of the same year.
May be used by a person or a corporation.
(b) fiscal year = beginning at any first day of the month up to the last day of the twelfth
month. Example: February 1, 2020 to January 31, 2021. May be used only by a
corporation.
*Paano kung korporasyon ka at gusto mo magshift ng taxable period within the same
year?
Let’s say naka-calendar period ka so all the income realized from Jan 1, 2020 to Dec
31, 2020. Tapos by September 2020 eh gusto mo magshift from calendar year to fiscal
year beginning Nov 1, 2020 to October 31, 2021. Eh may overlapping. So magfafile ka
ng short return from September 2020 to November 1, 2020.
Eto naman, let’s say naka-fiscal year ka at gusto mong magshift to calendar year. Bale
from Nov 1 to Dec 31, 2020 naka-fiscal year ka, tapos gusto mo by Jan 1 to December
31, 2021 eh naka-calendar year ka na. So ang gagawin mo, magfafile ka ng short return
from Nov 1 to Dec 31, 2020 para payagan kang magshift to calendar year pagdating ng
Jan 1.

Review Lecture
(3) Definition of Income = income is anything that flows into the wealth of the taxpayer
or anything that increases the net worth of a taxpayer other than mere return of capital.
[memorize daw this]
*Is income limited to legal sources? NO. When you say income, it can either be in cash
or in kind, regardless whether it came from legal or illegal sources. Parehong ita-tax ng
Gobyerno kahit na galing yan sa legal or illegal sources.
*Need pa bang ideclare yung income kahit galing sa illegal sources? YES. If not,
violation of Tax Code. Since the law says that income may come from illegal or legal
sources. Dapat silang ideclare and irecognize kahit galing pa yan sa illegal sources.
*Lahat ba ng income ay taxable. NOT ALL. So when is income taxable?
- Concept: In order for an income to be taxable, it must be actually realized or

constructively received.
-> actually realized = kung ano lang yung mismong meron ka na hawak; ‘yang asa
wallet mo.
-> constructively received = installments and even future installments (receivables)
Paano yung actually realized or constructively received? Depende ‘yan sa accounting

methods mo: (a) cash basis; or (b) accrual basis.
(a) Cash basis = income which is actually received, dinedeclare or recognize mo sya sa
list mo as income
(b) Accrual basis = even income which is constructively received may be recognized as
part of your income.
*Computations:
(a) Gross Receipts = ikaw ay nagbebenta ng service
(b) Gross Sales = ikaw ay nagbebenta ng goods
(c) Gross Income = cost of sales (CS) minus gross sales (GS) —> CS - GS
(d) Net Income = cost of sales (CS) minus gross sales (GS) minus allowable deductions
(AD) —> CS - GS - AD

Review Lecture
Example: Mayroong sari-sari store si Atty L. Nagbebenta si V ng goods.
(a) Magkano ang benta ni Atty L sa isang taon (12 months) = ang tawag dito ay GROSS
SALES
(b) Magkano ang puhunan ni Atty L = ang tawag dito ay COST OF SALES
Yung puhunan ni Atty L tatanggalin nya sa binebenta nya —> COST OF SALES -
GROSS SALES = GROSS INCOME
Tapos iaawas mo riyan yung allowable deductions kung applicable para makuha mo
yung NET INCOME. Eto yung tina-tax, kaya eto ay Taxable Net Income —> GROSS
INCOME - NET INCOME = TAXABLE NET INCOME
(4) Must answer the following questions:
(A) Did you receive anything:

- Whether from legal or illegal sources?
- whether in kind or in cash?
(B) If yes, is it income?
(C) If yes, is it taxable?

- dependent on the following:
-> source of income whether within or without
-> kinds of taxpayers (who you are)
-> kind of income received (items of inclusions, exclusions, exemptions, and

deductions)
-> kinds of deductions
-> capital gains v. capital loss
-> ordinary gains v. ordinary loss
-> capital assets v. ordinary assets
-> capital expenditures v. ordinary expenses
-> holding period

Review Lecture
(D) If yes, it is taxable, what kind of tax is to be imposed and what rate is to be applied?
= dependent on who you are as a taxpayer (individual or corporation) and the source of
the income, whether it’s from within or without.
(5) Kinds of Income Taxes:
*yung rate ng income tax ay nagbabago depende kung Sino ka na taxpayer at yung
source ng income mo kung within or without.
(a) Net Income Tax (NIT) System = Sa loob ng 12 months taxable period whether
calendar or fiscal year, pinagsasama sama yung items ng gross income tapos
merong nakalagay sa batas na allowable or authorized deductions.
TAXABLE NET INCOME : When these deductions are deducted from your gross
income, you come up with your taxable net income and then you multiply the latter with
the rates.
Ano yung rates? I-determine mo muna kung ano yung taxpayer:
-> Tao; or
-> Korporasyon
When you multiply the taxable net income with the tax rate = TAX DUE. If meron kang
creditable withholding tax, ibabawas mo ‘yon.
(b) Withholding Tax (Tong) = Naririning nyo yung mga salitang Tax at Source.
Two types:
-> Creditable Withholding Tax
-> Final Withholding Tax
-> Expanded Withholding Tax (pangatlong type)
*illustration:
‘Yong buong marker ay ‘yong income na ibibigay nya. So si Atty ‘yong source nung
income, tayo yung recipient.

Review Lecture
Kaya sya naging withholding, kasi ‘yong source ng income, which is si Atty, need nyang
magbawas (or magwithhold) ng corresponding tax (in this case, yung tinanggal ni Atty is
yung cap ng marker) and meron din syang obligation sa batas na i-remit yung binawas
nya sa income (cap ng marker) sa BIR.
So technically, ang tinanggap natin from Atty is ‘yong buong marker with the cap. Pero
‘yong actual na nareceive natin is the marker lang without the cap or yung income net of
tax. This is one way of advanced collection of taxes because this is a tax withheld at
source.
Two types of withholding taxes:
(1) CREDITABLE WITHHOLDING TAXES (CWT) = eto lahat yung mga taxes na
binawas nung binigay sayo yung income mo, so ngayon, ike-credit mo ito ngayon sa
mga taxes na due sayo. In other words, the income or transaction will still be
subjected to another type of tax and you credit the tax withheld against the tax due.
(2) FINAL WITHHOLDING TAXES (FWT) = all transactions which have been subjected
to FWT, will no longer be subjected to any types of taxes.
(3) EXPANDED WITHHOLDING TAXES (EWT) = depends on the kind of income.
(c) Gross Income Tax
-> you multiply the gross income with the rate immediately. Hindi mo na ide-deduct
muna yung mga allowable deductions para yung tax nyan asa gross income mismo.
(d) TRAIN Law: 8% = applicable if only you are a self-employed individual or a self-
employed professional, provided that your gross sales or gross receipts do not exceed
P3 million. It is taxed on the gross, walang allowable deductions.
(e) Fringe benefits tax, minimum corporate income tax, improperly accumulated
earnings tax, branch profit remittance tax, inter-corporate dividends tax = other types of
income taxes that we apply pwede sa individual or corporations, these are the minor
ones.

Review Lecture
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KINDS OF TAXPAYERS
A. TAO
(1) RESIDENT CITIZEN = a citizen of the Philippines who resides in the Philippines
[1987 Constitution]
(2) NON-RESIDENT CITIZEN =

• Section 22 (E): The term ‘nonresident citizen’ means:
• A citizen of the Philippines who establishes to the satisfaction of the

Commissioner the fact of his physical presence abroad with a definite
intention to reside therein.
• A citizen of the Philippines who leaves the Philippines during the taxable
year to reside abroad, either as an immigrant or for employment on a
permanent basis. (Example: seaman)
• A citizen of the Philippines who works and derives income from abroad
and whose employment thereat requires him to be physically present
abroad most of the time during the taxable year. (Examples: OCWs)
• A citizen who has been previously considered as nonresident citizen and

who arrives in the Philippines at any time during the taxable year to reside
permanently in the Philippines shall likewise be treated as a nonresident
citizen for the taxable year in which he arrives in the Philippines with
respect to his income derived from sources abroad until the date of his
arrival in the Philippines.
• The taxpayer shall submit proof to the Commissioner to show his intention
of leaving the Philippines to reside permanently abroad or to return to and
reside in the Philippines as the case may be for purposes of this Section.

Review Lecture
Summary:
(i) those who leave the Philippines and who show proof to the satisfaction of the
Commissioner of Internal Revenue: (1) his physical presence abroad; (2) with intention
of residing therein permanently.
Keywords: wala sa Pilipinas; at may intensyong manirahan permanently sa labas ng

Pilipinas.
(ii) Those who leave the Philippines for employment abroad and whose contracts
require them to be physically present abroad most of the time during the year.
Classic examples: OFWs, contract workers sa labas ng bansa = who, from time to time,
goes back to the Philippines to spend their break here in the Philippines.
(iii) Those who are considered as immigrants outside of the Philippines
(iv) Seaman is considered a NRC kahit pa yan ay naglalayag sa dagat at walang

permanenteng tirahan kasi wala namang tirahan sa dagat dahil ang barko ay dumadaan
laming at dumadaong sa pier.
-> question #1: what if you are a dual citizen?
ANS: It does not apply here, because dual citizenship has to be determined for
citizenship and immigration purposes only.
(A) so if a dual citizen is residing here in the Philippines, ano status nya? = Resident
Citizen
(B) If dual citizen is residing abroad, ano status nya? = Non-Resident Citizen
-> question #2: what if you are a former NRC, at any time during the 12 months, you
decided to go back to the Philippines permanently. What will happen?
ANS: Then you will be reclassified differently during the year. This shall be the only
instance that a taxpayer is classified differently within one taxable period
of 12 months.

Review Lecture
*illustration #1: Let’s say I’m an immigrant living in the USA. So let’s take the case of
2021 from January to December. So prior to 2021 eh considered for tax
purposes as non-resident citizen ka. Pero nung August 1, 2021 bumalik ka
sa Pilipinas to reside here permanently. So from January to July 31,
classified ka as a non-resident citizen but starting August 1 to December
31, 2021, because of your intention to live here permanently, classified ka
na as a resident citizen.
*illustration #2: But if baliktad, let’s say resident citizen ka at nakatira ka sa Quezon City,
pumunta ka ng USA as an immigrant ng August 1, 2021.
Magbabago ba ang classification mo from RC to NRC? Ay Hindi! Forever kang RC until

December 31, 2021. Malaki ang tax impact nyan because your
classification is not changed from beginning until the end. So when will
you be considered for tax purposes as NRC? Edi sa susunod na taon na
beginning January 1, 2022.
(3) RESIDENT ALIEN = edi alien or foreigner. One who is not a citizen of the
Philippines (a resident of a foreign country) but residing in the Philippines.
-> bakit walang classification sa resident alien whether engaged sila sa trade/business
or hindi, unlike sa non-resident alien? Kasi the distinction lies on the fact of residence.
‘Pag ikaw ay alien and there is manifest intention to stay or reside in the Philippines,
and your intention to reside here is manifested (example: nagrenta ka ng bahay or
bumili ka ng condo), as long as you have that manifest intention to stay or reside here in
the Philippines, that makes you a resident alien.
-> kailangan bang i-classify kung engaged in trade/business si resident alien? Hindi
kailangan i-classify ng batas ang resident alien kung engaged in trade/business or hindi
kasi pag nakatira sya sa Pilipinas, gagastos sya sa Pilipinas. At pag gumastos ka sa
Pilipinas, you are producing income, therefore, tax will be paid in the income that you
produced. So hindi kailangang engaged ang resident alien in trade/business habang
andito sya.
-> ano ang source of income ni resident alien? Ang source ng pera nya ay sa ibang
bansa, pero when he/she spends within the confines of his/her condo unit, he/she
creates income for somebody else. Therefore, the government will collect tax from that
type of income. The resident aliens are producing income in the nature of expenditures.

Review Lecture
Lalo na if yung resident alien ay may sariling tindahan pa, o edi lalong masaya ang
Gobyerno ng Pilipinas sa kanya, nagke-create sya ng income na sarili from Philippine
sources, tapos sya ay gumagastos pa sa Pilipinas, doble ang sources ng tax ng
Pilipinas na nakokolekta sa kanila.
(4) NON-RESIDENT ALIEN ENGAGED IN TRADE AND BUSINESS (NRAETB) = a

citizen of a foreign country who is not residing in the Philippines who is engaged in
trade and business in the Philippines
(5) NON-RESIDENT ALIEN NOT ENGAGED IN TRADE AND BUSINESS (NRANETB)

= a citizen of a foreign country who is not residing in the Philippines and who is not
engaged in trade and business in the Philippines
(6) SPECIAL TYPES OF NRANETB
-> Section 25 (B), (C), and (D), NIRC
-> they are employed in:
(a) Offshore Banking Units
(b) Oil Petroleum Service Contractors
(c) Multi-National Companies
-> in layman’s term = “EXPATS”
-> indicators in order to classify a non-resident alien:
(1) The 180 day period.
-> if an alien stays in the Philippines for an aggregate period of or more than 180 days =
NRAETB
-> if not = NRANETB

Review Lecture
(2) Principle of habituality
-> if an alien regularly enters into commercial transactions here in the Philippines
regardless of period of time = NRAETB
-> if not = NRANETB
(3) Branch
-> Puts up a branch of his foreign company here in the Philippines = NRAETB
-> if not = NRANETB
(4) Appointments of Agents
-> if yes = NRAETB
-> if no = NRANETB
(5) Hiring of employees
-> if yes = NRAETB
-> if no = NRANETB

Review Lecture
B. KORPORASYON
(1) DOMESTIC CORPORATION
-> a corporation which is incorporated in accordance with Philippine laws and this may
have foreign equity and regardless of the percentage of the foreign equity, Hindi mag
ma-matter because what is important is it is incorporated in accordance with Philippine
laws.
(2) RESIDENT FOREIGN CORPORATION
-> a corporation which is incorporated in accordance with any law, other than the
Philippines. Ibig sabihin, kahit pa incorporated in accordance with foreign laws, this is
engaged in trade or business here in the Philippines.
(3) NON-RESIDENT FOREIGN CORPORATION
-> a corporation which is incorporated in accordance with any foreign laws, but not
engaged in trade or business here in the Philippines.

Review Lecture
SUMMARY OF KINDS OF TAXPAYERS
-> bearing in mind that depending on who you are as a taxpayer, you have a principal
source of income. You can immediately see using the concept of within and without as
the source of your income kung ano ang taxable sa inyo.
KINDS OF TAXPAYER PHILIPPINES

FOREIGN COUNTRY
DOUBLE TAXATION
“Within” “Without” BROAD SENSE
RESIDENT CITIZEN Nakatira sa pilipinas (/)

Pwedeng mamasyal sa Source of income in the
ibang bansa
Philippines = subject to
Source of income: Source of income: tax in the Philippines
pwede ka kumita.
pwede ka kumita sa
Principal source: sa Pilipinas Expenditure/income
Pilipinas made in the foreign
country = subject to tax
both in the foreign
country where the
income is derived from
and in the Philippines
NON-RESIDENT Source of income: Source of income: Eto Source of income in the

CITIZEN Pwede ka rin kumita or ang main source of Philippines = subject to
hindi
income mo
tax in the Philippines
Add on: yes Principal source: sa

foreign country Expenditure/income
made in the foreign
both in the foreign
country where the
RESIDENT ALIEN Source of income: Source of income: Source of income in the

Pwede ka rin kumita or Pwede ka rin kumita or Philippines = both
hindi
hindi
subject to tax in the
Add on: yes Principal source: sa foreign country and in
foreign country the Philippines
Expenditure/income
made in the foreign
in the foreign country
where the income is
derived from

Review Lecture
NON-RESIDENT ALIEN Source of income: Source of income: Source of income in the
ETB Pwede ka rin kumita
Pwede ka rin kumita
Philippines = both
Add on: yes Principal source: sa subject to tax in the
foreign country foreign country and in
the Philippines
Expenditure/income
made in the foreign
where the income is
derived from
NON-RESIDENT ALIEN Source of income: Source of income: Source of income in the

NETB Pwede ka rin kumita
Pwede ka rin kumita Philippines = both
Add on: yes subject to tax in the
foreign country and in
the Philippines
Expenditure/income
made in the foreign
where the income is
derived from
SPECIAL NRANETB Source of income: Source of income: Source of income in the

Pwede ka rin kumita
Pwede ka rin kumita Philippines = both
Add on: yes subject to tax in the
foreign country and in
the Philippines
Expenditure/income
made in the foreign
where the income is
derived from
DOMESTIC Principal source: sa Source of income: Source of income in the

CORPORATION Pilipinas Pwede ka rin kumita or Philippines = subject to
hindi tax in the Philippines
Expenditure/income
made in the foreign
both in the foreign
country where the

Review Lecture
RESIDENT FOREIGN Source of income: Source of income: Source of income in the
CORPORATION Pwede ka rin kumita
Pwede ka rin kumita
Philippines = both
Add on: yes Principal source: sa subject to tax in the
the Philippines
Expenditure/income
made in the foreign
where the income is
derived from
NON-RESIDENT Source of income: Source of income: Source of income in the

FOREIGN Pwede ka rin kumita
Pwede ka rin kumita
Philippines = both
CORPORATION Add on: yes Principal source: sa subject to tax in the
the Philippines
Expenditure/income
made in the foreign
where the income is
derived from
-> This table also shows the concept of double taxation.
DOUBLE TAXATION
-> two types:
(1) Direct Duplicate / Broad Sense = this is the acceptable one; this is allowed, not
illegal, not unconstitutional, but frowned upon, but the law recognizes the dual
impact of double taxation, therefore the law also provides the remedy to reduce the
impact of this kind of double taxation. As much as possible, if we can avoid double
taxation in the broad sense then we will avoid.
~> common remedy: tax credit
(2) Indirect Duplicate / Strict Sense = illegal, unconstitutional, prohibited. What is being
violated is the equal protection clause under the Constitution. It is committed when:
taxing twice the same subject matter within the same taxable period for the same
purpose and for the same kind of tax.

Review Lecture
—————————————————————————————————
Section 42, Tax Code
How do you determine the source of income?
(1) Income Within = Gross Income / Taxable Income from sources within the Philippines
[Section 42 (A) and (B), Tax Code]
(2) Income Without = Gross Income / Taxable Income from sources without the
Philippines [Section 42 (C) and (D), Tax Code]
(3) Income Partly Within and Without = Income from sources partly within and without
the Philippines [Section 42 (E), Tax Code]

Review Lecture
KINDS OF Compensati Interest
Income from Rentals
Royalties
Dividends
TAXPAYER on
-> on bank real property
-> where it is
-> where it is
-> where the deposits: -> where it is located
located
*issued by a
services are where the located
DC =
rendered, bank is *WITHIN =
*WITHIN = WITHIN
regardless located
*WITHIN = located
located
where the *WITHIN = located within the
within the *issued by a
payment is bank is within the Philippines
Philippines
FC (FRC/
made
located in Philippines
NFRC) =
*WITHIN = the GR =
sa Pilipinas Philippines
*WITHOUT = *WITHOUT = WITHIN
ginawa
*WITHOUT = *WITHOUT = located in a located in a XPN: 3 YRS
*WITHOUT = bank is located in a foreign foreign PRIOR TO
sa ibang located in a foreign country country RELEASE
bansa foreign country OF
ginawa country
DIVIDENDS,
INCOME
-> on loans, FROM
obligations, PHILS
debentures SOURCES
& IS LOWER
promissory THAN 50%
notes: OF ITS
debtor’s TOTAL
residence
INCOME
*WITHIN = FOR THE
debtor is a LAST
resident of THREE
the YEARS:
Philippines
*WITHIN =
*WITHOUT = PHIL
debtor is a SOURCES
resident of a *WITHOUT =
foreign FOREIGN
country SOURCES
RESIDENT Within & Within & Within & Within & Within & Within &
CITIZEN Without Without Without Without Without Without
NON- Within only Within only Within only Within only Within only Within only
RESIDENT
CITIZEN
RESIDENT Within only Within only Within only Within only Within only Within only
ALIEN
RESIDENT
ALIEN ETB
RESIDENT
ALIEN NETB

Review Lecture
SPECIAL Within only Within only Within only Within only Within only Within only
NRANETB
DOMESTIC Within & Within & Within & Within & Within & Within &
CORPORATI Without Without Without Without Without Without
ON
RESIDENT Within only Within only Within only Within only Within only Within only
FOREIGN
CORPORATI
ON
RESIDENT
FOREIGN
CORPORATI
ON
Gross Income From Sources Within the Philippines:
(1) Compensation
-> where the services is rendered, regardless where the payment is made.
Example: Sa Pilipinas ka naggupit = Sa Pilipinas ka itata-tax.
Sa US ka naggupit tapos sa Pilipinas ka naswelduhan = Sa US ka ita-tax.

Review Lecture
(2) Interest
-> two types:
(a) on bank deposits
-> if the bank which issued the interest is located in the Philippines = WITHIN
-> if the bank which issued the interest is located in outside of the Philippines =
WITHOUT
(b) on loans, obligations, debentures and promissory notes
-> there is a debtor-creditor relationship
(A) If the debtor who paid the interest expense to the creditor is a resident of the
Philippines, the interest income of the creditor is = WITHIN
(B) If the debtor who paid the interest expense to the creditor is a non-resident of the
Philippines, the interest income of the creditor is = WITHOUT
Example: Si X ang debtor, si Y ang creditor. May utang si X na P100k na may interest
na P10k kay Y. Nagbayad si X nung P100k + interest na P10k kay Y.
Sino ang gumastos? X
Sino ang nagbayad ng interest? = X
Sino ang kumita? = Y
Magkano ang kinita ni Y? P10k
So ang taxpayer na pinaguusapan ay si creditor, pero ang pinanggalingan ng income ni

creditor ay yung debtor. So the debtor pays the interest and on his side, it’s called an
interest expense (gastos). Gumastos si debtor ng interest tapos binayad nya sa creditor.
On the creditor’s side, it’s called an interest income.
RESIDE NON- RESIDE NON- NON- SPECIA DOMES RESIDE NON-

NT RESIDE NT RESIDE RESIDE L TIC NT RESIDE
CITIZEN
NT ALIEN NT NT NRANE CORPO FOREIG NT
CITIZEN ALIEN ALIEN TB RATION N FOREIG
(X)
ETB NETB CORPO N
RATION CORPO
RATION

Review Lecture
RESIDE WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN
NT
CITIZEN
(Y)
NON- WITHIN WITHO WITHIN WITHO WITHO WITHO WITHIN WITHIN WITHO
RESIDE UT UT
UT
UT
UT
NT
CITIZEN
RESIDE WITHIN WITHO WITHIN WITHO WITHO WITHO WITHIN WITHIN WITHO
NT UT UT
UT
UT
UT
ALIEN
RESIDE UT UT
UT
UT
UT
NT
ALIEN
ETB
RESIDE UT UT
UT
UT
UT
NT
ALIEN
NETB
SPECIA WITHIN WITHO WITHIN WITHO WITHO WITHO WITHIN WITHIN WITHO
L UT UT
UT
UT
UT
NRANE
TB
DOMES WITHIN WITHIN

WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN
TIC
CORPO
RATION
RESIDE WITHIN WITHO WITHIN WITHO WITHO WITHO WITHIN WITHIN WITHO
NT UT UT
UT
UT
UT
FOREIG
N
CORPO
RATION
RESIDE UT UT
UT
UT
UT
NT
FOREIG
N
CORPO
RATION

Review Lecture
(3) Income from real property
-> follows lex rei sitae principle
(A) If property which income is derived from is located in the Philippines = WITHIN
(B) If property which income is derived from is located outside of the Philippines =
WITHOUT
(4) Rentals
WITHOUT
(5) Royalties
WITHOUT
*regardless who is the recipient

Review Lecture
(6) Dividends
-> if issued by:
(A) Domestic Corporation = WITHIN
(B) Foreign Corporation = GR: WITHIN
= XPN: Three years prior to the declaration of the dividends,

the income of such foreign corporation from the Philippines sources is less than 50% of
its total income, in which case, a portion of the dividends (income derived by the foreign
corporation from Philippine sources versus the total income of the said foreign
corporation) shall be treated as income within
*regardless who is the stockholder who received it

Review Lecture
*example #1:
XYZ Corporation, the issuing company is a domestic corporation. XYZ Corp issued
dividends worth 100,000 to X, a stockholder.
Nung tumanggap ba si X ng dividends from XYZ Corp, income ba yun sa kanya? =

YES. Income is anything that flows into the wealth of the taxpayer other than mere
return of capital.
Yan ba ay within or without? = Dahil ang nag issue ay domestic corporation, yan ay
within.
Regardless of X is, the dividends is taxable within:
EXAMPLE RESIDEN NON- RESIDEN NON- NON- SPECIAL DOMESTI RESIDEN NON-
#1 T CITIZEN
RESIDEN T ALIEN RESIDEN RESIDEN NRANET C T RESIDEN
T CITIZEN T ALIEN T ALIEN B CORPOR FOREIGN T
(X)
ETB NETB ATION CORPOR FOREIGN
ATION CORPOR
ATION
DOMESTI WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN
C
CORPOR
ATION

Review Lecture
*example #2:
XYZ Corporation, the issuing company is a foreign corporation. XYZ Corp issued
dividends worth 100,000 to X, a stockholder.

return of capital.
Yan ba ay within or without? = GENERALLY, Dahil ang nag issue ay foreign corporation,
yan ay within.
Regardless of X is, the dividends is taxable within:
EXAMPL RESIDEN NON- RESIDEN NON- NON- SPECIAL DOMESTI RESIDEN NON-
E #2: T RESIDEN T ALIEN RESIDEN RESIDEN NRANET C T RESIDEN
CITIZEN
T T ALIEN T ALIEN B CORPOR FOREIGN T
CITIZEN ETB NETB ATION CORPOR FOREIGN
(X)
ATION CORPOR
ATION
FOREIGN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN
CORPOR
ATION

Review Lecture
*example #3:
XYZ Corporation, the issuing company is a resident foreign corporation. XYZ Corp
issued dividends worth 100,000 to X, a stockholder in 2020.
XYZ Corp’s place of business: United States of America
Branch: Manila, Philippines
Mga kita ni XYZ mula 2017-2019:
YEAR USA (place of business) PHILIPPINES (branch office)
2019 P4 million P1 million
TOTAL NG KINITA: P14 million P4 million
SUM TOTAL NG KINITA: (P14 +4) million P18 million
Sa loob ng tatlong taon, kumita si XYZ Corp ng P18 million: P4 million ang kinita ni XYZ
Corp sa branch office nya dito sa PIlipinas, habang P14 million ang kinita nya sa USA.

return of capital.
Yan ba ay within or without? = Three years prior to the declaration of the dividends, the
income of such foreign corporation from the Philippines sources is less than 50% of its
total income, in which case, a portion of the dividends (income derived by the foreign
corporation from Philippine sources versus the total income of the said foreign
corporation) shall be treated as income within.
Kelan nag issue ng dividends? = 2020
Three years prior to the declaration of dividends, magkano ang kita ni XYZ Corp sa
Pilipinas = P4 million

Review Lecture
Magkano ang total income ni XYZ Corp three years prior sya magrelease ng dividends?
= P18 million
50% of its total income = P18 million / 2 = P9 million
Lesser than 50% of the total income ang kinita ni XYZ Corp sa Pilipinas noon
2017-2019 = P4 million lang ang kita nya dito sa Pilipinas, samantalang P9 million ang
kalahati ng overall total income
Hindi lahat ng dividends ay taxable, mangilan lamang.
Formula: total income from Philippine sources three years prior to the issuance of
dividends / sum total of income three years prior to the issuance of dividends X worth
of the no. of dividends issued
-> P4 million / P18 million X P100,000
= P22,2222 -> within
= P77,778 -> without
Regardless of who X is, he is taxable for:
RESIDEN NON- RESIDEN NON- NON- SPECIAL DOMESTI RESIDEN NON-

T RESIDEN T ALIEN RESIDEN RESIDEN NRANET C T RESIDEN
CITIZEN
T T ALIEN T ALIEN B CORPOR FOREIGN T
CITIZEN ETB NETB ATION CORPOR FOREIGN
(X)
ATION CORPOR
ATION
XYZ WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN WITHIN
CORP
(P22,222 (P22,222 (P22,222 (P22,222 (P22,222 (P22,222 (P22,222 (P22,222 (P22,222
(RESIDE 2) &
2)
2)
2)
2)
2)
2) &
2)
2)
NT
WITHOU ONLY ONLY ONLY ONLY ONLY WITHOU ONLY ONLY
FOREIGN T T
CORPOR (P77,778) (P77,778)
ATION)
—————————————————————————————————

Review Lecture
KINDS OF INCOME TAXES/ KINDS OF INCOME TAXES APPLIED AND RATES:
Pertinent provisions: Section 24 = (A): All income; (B): Passive Income; (C): Capital
Gains on sales of shares of stocks; (D): Capital Gains on sales of real property
*default rule: always items of income are taxable
*exception: exempted by law or excluded in the computation of gross income according

to Sec 32 (b)
Steps:
(1) Determine mo muna if income ‘yan
(2) Determine if (1) included; (2) excluded; (3) exempted
(3) If included, determine kung saan sya: (A): All income; (B): Passive Income; (C):
Capital Gains on sales of shares of stocks; (D): Capital Gains on sales of real
property
(4) I-apply ang tax rate

Review Lecture
KIND OF WITHIN
WITHOUT
A
B
C
D
APPLICATI
TAXPAYER ALL PASSIVE CAPITAL CAPITAL ON OF
-> -> Foreign INCOME
INCOME
GAINS GAINS THE
Philippine sources (Pag wala (SALE OF (SALE OF EXEMPTIO
sources sa B, C (Interest on SHARES REAL N ON THE
and D, for bank OF PROPERT CGT OF
sure dito deposits, STOCKS Y 6%
sya prizes and IN A LOCATED

taxable winnings, DOMESTI IN THE (Actual
under royalties C PHILIPPIN principal
income and CORPORA ES) residence
tax) dividends) TION) = place
where one
is absent,
but has
the
intention of
returning
to; does
not require
continuous
uninterrupt
ed stay or
possessio
n)
RESIDENT TAXABLE TAXABLE NET FINAL FINAL FINAL APPLICAB

CITIZEN INCOME WITHHOL WITHHOL WITHHOL LE SINCE
TAX DING TAX DING TAX DING TAX HE/SHE IS
(graduated AN
rates) / 8% INDIVIDUA
TRAIN L
LAW TAXPAYER

Review Lecture
NON- TAXABLE NOT NET FINAL FINAL FINAL APPLICAB
RESIDENT TAXABLE INCOME WITHHOL WITHHOL WITHHOL LE SINCE
CITIZEN TAX DING TAX DING TAX DING TAX HE/SHE IS
(graduated AN
TRAIN L
LAW TAXPAYER
(Eg OFW
na may
bahay dito
at pamilya
nya ang
nakatira
muna
habana
nagtratrab
aho sya sa
bang
bansa)

Review Lecture
RESIDENT TAXABLE NOT NET FINAL FINAL FINAL APPLICAB
ALIEN TAXABLE INCOME WITHHOL WITHHOL WITHHOL LE SINCE
TAX DING TAX DING TAX DING TAX HE/SHE IS
(graduated AN
TRAIN L
LAW TAXPAYER
*GR:
Aliens are
not
allowed to
own real
properties
in the
Philippines
*XPN:
Aliens are
allowed to
own real
properties
through (a)
inheritance
or
successio
n; (b)
purchase
condomini
um units;
(c) former
Philippine
citizen
which are
treated as
capital
asset

Review Lecture
NON- TAXABLE NOT NET FINAL FINAL FINAL APPLICAB
RESIDENT TAXABLE INCOME WITHHOL WITHHOL WITHHOL LE SINCE
ALIEN ETB TAX DING TAX DING TAX DING TAX HE/SHE IS
(graduated AN
TRAIN L
LAW TAXPAYER
*GR:
Aliens are
not
allowed to
own real
properties
in the
Philippines
*XPN:
Aliens are
allowed to
own real
properties
through (a)
inheritance
or
successio
n; (b)
purchase
condomini
um units;
(c) former
Philippine
citizen
which are
treated as
capital
asset

Review Lecture
NON- TAXABLE NOT 25% ON FINAL FINAL FINAL APPLICAB
RESIDENT TAXABLE THE WITHHOL WITHHOL WITHHOL LE SINCE
ALIEN GROSS DING TAX DING TAX DING TAX HE/SHE IS
NETB INCOME AN
INDIVIDUA
L
TAXPAYER
*GR:
Aliens are
not
allowed to
own real
properties
in the
Philippines
*XPN:
Aliens are
allowed to
own real
properties
through (a)
inheritance
or
successio
n; (b)
purchase
condomini
um units;
(c) former
Philippine
citizen
which are
treated as
capital
asset

Review Lecture
SPECIAL TAXABLE NOT 25% ON FINAL FINAL FINAL APPLICAB
NRANETB
TAXABLE THE WITHHOL WITHHOL WITHHOL LE SINCE
(Expats GROSS DING TAX DING TAX DING TAX HE/SHE IS
working INCOME AN
for INDIVIDUA
offshore L
banking TAXPAYER
units,
petroleum *GR:
oil service Aliens are
contractor not
s and allowed to
multination own real
al properties
companies in the
) Philippines
*XPN:
Aliens are
allowed to
own real
properties
through (a)
inheritance
or
successio
n; (b)
purchase
condomini
um units;
(c) former
Philippine
citizen
which are
treated as
capital
asset
DOMESTI TAXABLE TAXABLE

C
CORPORA
TION
RESIDENT TAXABLE NOT

FOREIGN TAXABLE
CORPORA
TION
NON- TAXABLE NOT

RESIDENT TAXABLE
FOREIGN
CORPORA
TION

Review Lecture
*Note: wala ang NRA-NETB sa Pilipinas tsaka hindi sya engaged in trade or
business, kaya hindi sya pwedeng i-tax on the net. Otherwise, saan eto hahabulin?
So dapat pagbigay ng kita nya, ibabawas na kaagad yung 25% doon to ensure that
taxes are paid. The nature of this tax applied in this case is FWT, since the tax is
withheld at source.
(1) Section 24 (A): All income
-> pag ‘yong income mo wala sa B, C, and D (catch all)
A. Compensation Income Earner
income tax to be applied: Net income tax

- pagsasamahin yung lahat ng sinuweldo mo for the last 12 months then ile-less mo
yung authorized deductions;
- default rate;
- irrevocable until the end of the year;
- choice should be made on the first quarter of the year (first quarterly return)
Di ka nagbabayad ng VAT, pinapasa lang sayo yung VAT (kasi buyer ka forever)
B. Self Employed Individual
-> gross sales does not exceed P3M in a year:
income taxes to be applied:
• Net income tax = pagsasamahin yung lahat ng sinuweldo mo for the last 12 months
then ile-less mo yung authorized deductions; default rate; irrevocable until the end of
the year; choice should be made on the first quarter of the year (first quarterly return);
OR
• 8% TRAIN Law = the choice must be exercised at the start of the year (first quarterly
return), irrevocable until the end of the year; OR
• Walang pinili = in default, net income tax shall be applicable

Review Lecture
- However, if the 8% rate is available and SEI choose it = applied only in excess of
P250,000
-> gross sales exceeds P3M in a year:

- income tax to be applied: Net income tax = pagsasamahin yung lahat ng sinuweldo
mo for the last 12 months then ile-less mo yung authorized deductions; default rate;
irrevocable until the end of the year; choice should be made on the first quarter of the
year (first quarterly return).
- However, if the 8% rate is available and SEI choose it = applied only in excess of
P250,000
C. Self Employed Professional
-> gross receipts does not exceed P3M in a year:

- income taxes to be applied:
or
• 8% TRAIN Law = the choice must be exercised at the start of the year, irrevocable
until the end of the year; or

- However, if the 8% rate is available and SEP choose it = applied only in excess of
P250,000
-> gross receipts exceeds P3M in a year:

- income tax to be applied: Net income tax =pagsasamahin yung lahat ng sinuweldo
mo for the last 12 months then ile-less mo yung authorized deductions; default rate;
irrevocable until the end of the year; choice should be made on the first quarter of the
year (first quarterly return)

Review Lecture
- However, if the 8% rate is available and SEP choose it = applied only in excess of
P250,000
D. Mixed Income Earner
-> whose income from exercise of professor or trade or business does not exceed P3M
in a year:
- income tax to be applied:
or
• 8% TRAIN Law = the choice must be exercised at the start of the year, irrevocable
until the end of the year; or
-> whose income from exercise of professor or trade or business exceeds P3M in a
year:
- income taxes to be applied: pagsasamahin yung lahat ng sinuweldo mo for the last
12 months then ile-less mo yung authorized deductions; default rate; irrevocable until
the end of the year; choice should be made on the first quarter of the year (first
quarterly return)
*Note: Why P3M is the threshold in the gross sales/receipts = Same as VAT in Sec 109
(BB): Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Three million pesos (P3,000,000).

Review Lecture
*DIFFERENCE OF THE EFFECT ON THE INDIVIDUAL TAXPAYERS CHOOSING THE

8% TRAIN LAW:
(A) SEI/SEP = 8% is applied to gross receipts/sales in excess of P250,000
(B) MIE = 8% is applied to gross receipts/sales which does not exceed P3 Million.
-> wala nang in excess of P250k in the case of an MIE kasi yung income from
compensation nya is already subjected to NIT + if yung income nya from trade/
business/exercise of profession exceeds P3M subject din yun sa NIT. Dun sa unang
graduated rate nun which is not exceeding P250k yan papasok.
*For income tax purposes, when are you being subjected to VAT? Pag may
transactions.
KINDS OF INDIVIDUAL INCOME TAX APPLICABLE VAT & INCOME TAX TO BE

TAXPAYERS APPLIED
COMPENSATION INCOME NET INCOME TAX RATE NOT APPLICABLE; pinapasa

EARNER lang sa kanya pero di sya ang
nagbabayad
SELF EMPLOYED GROSS RECEIPTS:

APPLICABLE ONLY IF GROSS
PROFESSIONAL (sale of service) -> DOES NOT Exceed P3M =
RECEIPTS EXCEEDS P3M =
(a) NET INCOME (default choice NET INCOME TAX
also if walang pinili)
(b) 8% TRAIN LAW in excess of

P250,000
-> EXCEEDS P3M = NET

INCOME (DEFAULT)
- if 8% is available, may only be

applied in the excess of
P250,000

Review Lecture
SELF EMPLOYED INDIVIDUAL GROSS SALES:
APPLICABLE ONLY IF GROSS
(sale of goods) -> DOES NOT Exceed P3M =
SALES EXCEEDS P3M = NET
(a) NET INCOME (default choice INCOME TAX

P250,000

INCOME (DEFAULT)

P250,000
MIXED INCOME EARNER SEGREGATE INCOME FROM: (a) Income from compensation
(a) COMPENSATION and (b) = NO VAT
TRADE/BUSINESS/EXERCISE
OF PROFESSION
(b) Income from trade or
business / exercise of
——————————
profession= ONLY IF IT
(a) Income from compensation EXCEEDS P3M = NET
= Net Income Tax Rate
INCOME TAX
(b) Income from trade or
business / exercise of
profession=
GROSS RECEIPTS/SALES:
-> DOES NOT Exceed P3M =
(a) NET INCOME (default choice


P250,000

INCOME (DEFAULT)

P250,000

Review Lecture
(2) Section 24 (B): Passive Income
(a) Interest on bank deposits
-> peso/local currency/account = 20% FWT
-> foreign currency/account = 15% FWT
-> in case of long-term time deposits:

- not pre-terminated for a period of 5 years = exempted from FWT
- Pre-terminated on the 4th year = 5% FWT
- Pre-terminated on the 3rd year = 12% FWT
- Pre-terminated on the 2nd or 1st year = 20% FWT
(b) Royalties
-> derived from Philippine sources
-> GR: subject to 20% FWT
-> XPN: subject to 10% FWT = books, as well as other literary works and musical
compositions
-> royalties derived from foreign sources = regardless of amount, subject to net income
tax under column A
(c) Prizes and winnings
-> games of chance
• PCSO and lotto winnings:
- P10k and above = subject to 20% FWT

Review Lecture
- P10k and below = exempted
• Ordinary prizes and winnings:
- P10k and above = subject to 20% FWT

- P10k and below = subject to net income tax under column A
-> prizes or winnings derived from foreign sources = regardless of amount, subject to
net income tax under column A
(d) Dividends
-> Philippine sources

- income tax applied: final withholding tax
- Issued by a domestic corporation = subject to 10% FWT
- Issued by a foreign corporation = subject to net income tax under column A
*Take note: when a tax problem involves assets:
(a) Determine first if it is a real property or personal property
(b) Determine if it is an ordinary or capital asset
(c) Why is there a need to distinguish between ordinary and capital assets? = because
yung capital assets will not have any tax effect on you. Unlike ordinary assets wherein
there will be tax effect when you are using the asset and performing part of your

Review Lecture
operations, meron syang consequence sa tax mo kasi nababawasan yung buwis mo
dahil marami kang ginagamit na properties sa iyong trade or business.
(d) definitions:
-> capital asset = hindi ginagamit for trade or business

- Sec 39, Tax Code: The term ‘capital assets’ means property held by the taxpayer
-> ordinary asset = ginagamit sa trade or business
- stock in trade of the taxpayer or other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year, or
property held by the taxpayer primarily for sale to customers in the ordinary course of
his trade or business, or property used in the trade or business, of a character which is
subject to the allowance for depreciation provided in Subsection (F) of Section 34; or
real property used in trade or business of the taxpayer.
• examples: may tapsilogan na business si Lumbera sa tabi ng bahay nya. Eto ang mga
kagamitan:
(a) electric fan sa tapsilogan = ordinary asset
(b) electric fan sa bahay = capital asset
(c) mga utensils, kawali sa tapsilogan = ordinary asset
(d) mga utensils, kawali sa bahay = capital asset
(e) yong gas range which is subject to depreciation sa tapsilogan = ordinary asset
(f) yong gas range which is subject to depreciation sa bahay = capital asset
**remember: in assets = when the asset depreciates or appreciates in value while you
are using them whether as capital or ordinary, you do not have any income.
In any increase in value or net worth, for it to be considered as income, it should be

realized. This is what you call paper profit or loss on paper, wala kang income, wala
kang loss.

Review Lecture
Pero once ibinenta mo si asset and you realized income or you incurred a loss, there
will be corresponding tax consequence.
*So paano ka nagdedetermine ng kita o tubo (gains) or ng lugi (loss)? You do not
consider the historical cost (or puhunan or price nung binili mo sya), it is always the fair
market value at the time of sale that will be the basis, whether FMV is lower or higher
than the purchase price when you bought it.
If tubo/gains tapos binenta mo = bayad buwis
If lugi/loss tapos binenta mo ng lugi or pinamigay mo ng libre na lang = wala kang

income tax pero dapat di magsuffer ang gobyerno sayo kaya babawian ka ng batas
through bayad ka ng donor’s tax
(3) Section 24 (C): Capital Gains on sales of shares of stocks
-> shares of stocks
-> must be a domestic corporation
-> classified as a capital asset
-> sold it as an un-traded stock (sale was not course through the stock exchange)
- Philippine sources
- Rate: 15% FWT
-> untraded shares of stocks are issued by a foreign corporation = subject to net income
tax under column A
-> traded shares of stocks (ordinary asset) issued by a domestic corporation = subject
to net income tax under column A

Review Lecture
(4) Section 24 (D): Capital Gains on sales of real property
-> real property (land and/or building)
-> condominium units which are residential in nature
-> located in the Philippines
-> sold
- Rate: 6% FWT whichever is higher on:
• Gross selling price; or
• Fair market value at the time of sale (as seen in tax declaration from the local
assessor’s office); or
• Assed or Zonal valuation (as determined by BIR)
*take note: yung real property:
- may lupa and walang improvements = isang tax declaration sa lupa lang
- may lupa tapos may nakapatong na bahay = dalawa ang tax declaration - lupa tapos
bahay; so magkaiba ang fair market value ng bahay at assessed value ng bahay at
zonal valuation ng bahay kesa dun sa fair market value, assessed value and zonal
valuation ng lupa.
- in case of involuntary sales:

-> expropriation in favor of the govt with payment of just compensation = either choose:
• 6% FWT: Gross selling price; or Fair market value at the time of sale (as seen in tax
declaration from the local assessor’s office); or Assed or Zonal valuation (as
determined by BIR)

Review Lecture
• Net income tax = clincher: wala kang babayaran dun na tax technically, kasi wala
kang income or tubo dito eh, kaya mas okay ito
*just compensation = basis: fair market value at the time of expropriation
-> foreclosure of real estate mortgage = asset will be sold in auction, the proceeds to be
applied to the loan. At the point of foreclosure of real estate mortgage, wala pang capital
gains tax (CGT). At the point of sale in auction, wala pa ding capital gains tax.
When does CGT attach? When is it due in the case of the involuntary sale because of
foreclosure? = The CGT will be paid at the point of consolidation in favor of the buyer
(highest bidder).
*point of consolidation = after the expiration of the redemption period without the owner-
mortgagor redeeming the property
-> exemption from the CGT of 6% on sale of real properties located in the Philippines:
selling of actual principal residence = 30 days from the sale, you inform the BIR that you
are availing of the exemption. Within 18 months from the sale, you buy or build an
actual principal residence in lieu of the one sold. Avail of the exemption once in every 10
years. The historical cost is considered in determining how much will be exempted or
subjected to CGT of 6%.
example #1: Si Mr A ang may ari ng lupa. Tapos pinayagan nyang magtayo ng bahay si
Mr B. Kapag sabay binenta ang bahay at lupa, sino kila Mr A and Mr B ang makaka-
claim ng exemption from CGT? Si Mr B, kasi sya yung may ari ng bahay. Actual
physical residence yung mismong exempted. Eh si Mr A di naman nakatira dun kahit
sya pa ang may ari kaya di sya pwedeng makakuha ng exemption.
*example #2: Si Mr A ay may ari ng bahay at lupa at binenta nya both = Mr A can claim
the exemptions for both the land and the house.
*example #3: May ancestral house and lot na pinamana sa tatlong magkakapatid (Mr A,
Mr B and Mr C). Ang nakatira doon ay is bunso (Mr C), habang sila Mr A and Mr B hindi
doon nakatira. All of them decided to just sell the ancestral house and lot. Who among
the 3 of them will be entitled to claim the exemption? = Si Mr C lang kasi that is his

Review Lecture
actual physical residence, kaso at the extent of his share in the inheritance lang yung
claim nya sa exemption.
-> property is located outside of the Philippines = regardless of gross selling price, fair
market value, assessed or zonal valuation, subject to net income tax under column A

Review Lecture
—————————————————————————————————
TAX ON CORPORATE TAXPAYERS
*Take note: includes all kinds of corporations/partnerships/organizations whether they

are existing or de facto.
KIND WITHIN
WITHO A
B
C
D
INTER- MINIMUM IMPR
OF UT
ALL PASSIV CAPITA CAPITA CORPO CORPOR OPER
CORPO -> INCOM E L L RATE ATE LY
RATE Philippin -> E
INCOM GAINS GAINS DIVIDE INCOME ACCU
TAXPAY e Foreign (Pag E
(SALE (SALE NDS TAX
MULA
ER sources sources wala sa OF OF TAX (In lieu of TED
B, C (Interest SHARE REAL NIT, Hindi EARNI
and D, on bank S OF PROPE pwedeng NGS
for sure deposits STOCK RTY pareho TAX
dito sya and S IN A LOCATE slang
taxable royalties DOMES D IN maimpose
under only) TIC THE )
income CORPO PHILIPP
tax) RATION) INES)
DOMES TAXABL TAXABL NET/ FINAL FINAL FINAL DC to 2% 10%

TIC E E CORPO WITHH WITHH WITHH DC =
CORPO RATE OLDING OLDING OLDING EXEMP
RATION INCOM TAX TAX TAX TED
E TAX
FIXED
AT 30%
RESIDE TAXABL NOT NET/ FINAL FINAL NOT DC to 2% (but NOT

NT E TAXABL CORPO WITHH WITHH APPLIC RFC = limited APPLI
FOREIG E RATE OLDING OLDING ABLE EXEMP only to the CABL
N INCOM TAX TAX TED income E
CORPO E TAX from
RATION FIXED Philippine
AT 30% sources)

Review Lecture
NON- TAXABL NOT GROSS GROSS FINAL NOT DC to NOT NOT
RESIDE E TAXABL INCOM INCOM WITHH APPLIC NRFC = APPLICA APPLI
NT E E TAX E TAX OLDING ABLE 15% BLE CABL
FOREIG OF 30% OF 30% TAX FWT E
N
CORPO
RATION
Saan nanggaling ang kita ng mga korporasyon? = Trade or business (eto yung primary
and secondary purposes sa Articles of Incorporation nila)
(1) Section 24 (A): All income
-> lahat ng kinita ng isang domestic corporation sa loob ng 12 months, regardless kung
calendar or fiscal year na wala sa B, C, and D (catch all)
A. Domestic Corporation
GR:
- income tax to be applied: Net (Corporate) income tax at the rate of 30%
- how it is computed: gross income for the year (minus) authorized deductions (multiply
with) 30% (minus) creditable withholding tax, if any.
XPN:
SEC. 30. Exemptions from Tax on Corporations. — The following organizations shall
not be taxed under [NIT of 30%] in respect to income received by them as such:
*note: as such = stated as either primary or secondary purpose in its AOI.
• (A) Labor, agricultural or horticultural organization not organized principally for

profit;

Review Lecture
• (B) Mutual savings bank not having a capital stock represented by shares, and
cooperative bank without capital stock organized and operated for mutual
purposes and without profit;
• (C) A beneficiary society, order or association, operating for the exclusive benefit
of the members such as a fraternal organization operating under the lodge
system, or a mutual aid association or a nonstock corporation organized by
employees providing for the payment of life, sickness, accident, or other benefits
exclusively to the members of such society, order, or association, or nonstock
corporation or their dependents;
• (D) Cemetery company owned and operated exclusively for the benefit of its
members;
• (E) Nonstock corporation or association organized and operated exclusively for

religious, charitable, scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans, no part of its net income or asset shall belong
to or inure to the benefit of any member, organizer, officer or any specific person;
• (F) Business league, chamber of commerce, or board of trade, not organized for
profit and no part of the net income of which inures to the benefit of any private
stockholder or individual;
• (G) Civic league or organization not organized for profit but operated exclusively
for the promotion of social welfare;
• (H) A nonstock and nonprofit educational institution;
• (I) Government educational institution;
• (J) Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or
irrigation company, mutual or cooperative telephone company, or like
organization of a purely local character, the income of which consists solely of
assessments, dues, and fees collected from members for the sole purpose of
meeting its expenses; and
• (K) Farmers’, fruit growers’, or like association organized and operated as

a sales agent for the purpose of marketing the products of its members and
turning back to them the proceeds of sales, less the necessary selling expenses
on the basis of the quantity of produce finished by them.
Notwithstanding the provisions in the preceding paragraphs, the income of whatever

kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the disposition
made of such income, shall be subject to tax imposed under this Code.

Review Lecture
-> “Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the disposition
made of such income, shall be subject to tax imposed under this Code.” Meaning =
lahat ng kinita ng mga korporasyong ito, pursuant to the primary purpose ay no tax.
Pero lahat ng kita nila sa kanilang properties (real or personal), or kita nila sa activities
conducted for trade or business or profit, regardless ng disposition, ay subject to tax.
B. Resident Foreign Corporation

with) 30% (minus) creditable withholding tax, if any
C. Non-Resident Foreign Corporation

with) 30% (minus) creditable withholding tax, if any
D. General Professional Partnership (GPP)

- a partnership established exclusively for the exercise of the common profession of
the partners and no part of its income is derived from trade or business.
- Not subject to tax

Review Lecture
E. General Co-Partnership
- a partnership other than a GPP
(2) Section 24 (B): Passive Income
(a) Interest on bank deposits from:
-> in case of long-term time deposits: default 20% FWT (pre-termination tax rates does
not apply in corporations)
(b) Royalties
-> regulars
-> Subject to 20% FWT (they are not entitled to the exemption of 10% FWT because as
corporations they are not capable of books, literary or musical compositions)
tax under column A
*Take note: walang prizes/winnings sa corporations kasi hindi pwedeng manalo sa

game of chance ang korporasyon, that’s why it’s not part of the passive income of a
domestic corporation. Yung dividends ng domestic corporation hindi sya under passive
income, naka-separate sya which is called Inter-Corporate Dividends Tax.

Review Lecture
-> in case of long-term time deposits: default 20% FWT (pre-termination tax rates does
(b) Royalties
-> regulars
-> Subject to 20% FWT (they are not entitled to the exemption of 10% FWT because as
tax under column A

resident foreign corporation.
C. Non-Resident Corporation
-> peso/local currency/account = 30% GROSS INCOME TAX
-> foreign currency/account = 15% GROSS INCOME TAX
-> in case of long-term time deposits: default 20% GIT (pre-termination tax rates does
(b) Royalties

Review Lecture
-> regulars
-> Subject to 20% GIT (they are not entitled to the exemption of 10% FWT because as
tax under column A

resident foreign corporation.
(3) Section 24 (C): Capital Gains on sales of shares of stocks
-> shares of stocks
-> must be a domestic corporation
- Rate: 15% FWT
tax under column A

Review Lecture
-> shares of stocks
-> must be a resident foreign corporation
- Rate: 15% FWT
tax under column A
-> must be a resident foreign corporation
- Rate: 15% FWT
tax under column A

Review Lecture
(4) Section 24 (D): Capital Gains on sales of real property
-> real property (land and/or building)
-> condominium units which are residential in nature
-> located in the Philippines
-> sold
- Rate: 6% FWT whichever is higher on:
• Gross selling price; or
• Fair market value at the time of sale (as seen in tax declaration from the local
assessor’s office); or
• Assed or Zonal valuation (as determined by BIR)
*take note: yung real property:
- may lupa and walang improvements = isang tax declaration sa lupa lang
- may lupa tapos may nakapatong na bahay = dalawa ang tax declaration - lupa tapos
bahay; so magkaiba ang fair market value ng bahay at assessed value ng bahay at
zonal valuation ng bahay kesa dun sa fair market value, assessed value and zonal
valuation ng lupa
- in case of involuntary sales:

-> expropriation in favor of the govt with payment of just compensation) = either choose:

Review Lecture
• 6% FWT: Gross selling price; or Fair market value at the time of sale (as seen in tax
declaration from the local assessor’s office); or Assed or Zonal valuation (as
determined by BIR)
• Net income tax = clincher: wala kang babayaran dun na tax technically, kasi wala
kang income or tubo dito eh, kaya mas okay ito
*just compensation = basis: fair market value at the time of expropriation
-> foreclosure of real estate mortgage = asset will be sold in auction, the proceeds to be
applied to the loan. At the point of foreclosure of real estate mortgage, wala pang capital
gains tax. At the point of sale in auction, wala pa ding capital gains tax.
When does CGT attach? When is it due in the case of the involuntary sale because of
foreclosure? = The CGT will be paid at the point of consolidation in favor of the buyer
(highest bidder).
*point of consolidation = after the expiration of the redemption period without the owner-
mortgagor redeeming the property
-> property is located outside of the Philippines = regardless of gross selling price, fair
market value, assessed or zonal valuation, subject to net income tax under column A

- not applicable because a foreign corporation is not allowed to own any real property
in the Philippines. Therefore, there is no possibility that the CGT of 6% will be applied
to a resident foreign corporation
C. Non-resident Foreign Corporation

- not applicable because a foreign corporation is not allowed to own any real property
in the Philippines. Therefore, there is no possibility that the CGT of 6% will be applied
to a non-resident foreign corporation

Review Lecture
(5) Inter-Corporate Dividends Tax
-> Domestic Corporation issued dividends to a stockholder of a domestic corporation =

EXEMPTED
-> Domestic Corporation issued dividends to a stockholder of a resident foreign

corporation = EXEMPTED
-> Domestic Corporation issued dividends to a stockholder of a non-resident foreign

corporation = 15% FWT
(6) Minimum Corporate Income Tax

-> In lieu of NIT, hindi pwedeng pareho silang ma-impose
-> The 2% minimum corporate income tax is imposed on domestic corporations
beginning the 4th year following the commencement of its operations provided that the
2% on the gross is higher than the net income tax.
~> situations contemplated:
(a) if your 20% net income tax is lower than the 2% on the gross income = MCIT

Review Lecture
(b) Sa ika-apat na taon ng iyong business at ikaw ay lugi pa din, lagi kang magbayad
ng buwis = kung ano ang mas mataas dito: (1) NIT or (2) MCIT
*back story: nagsimula ito ng 1997 - Tax Reform Act of 1997. Yan yung first time na
nagkaroon kayo ng provision ng MCIT. Bago mag 1997, napansin ng mga lawmakers
nung nakuha nila yung data sa Securities and Exchange Commission tapos na-cross
match nila ‘yon sa data ng BIR naman kung sinu-sino sa mga korporasyon ang may
binabayad na buwis, at ‘yung zero tax payment. So napansin nila ngayon na mas
maraming korporasyon sa Pilipinas ang laging zero tax payment, hindi nagbabayad ng
NIT (after their computations, walang tax, so in other words, laging lugi ang dine-declare
= hindi sa walang kinita, pero mas marami kasi yung allowable deductions kesa dun sa
income na kinita nila kaya nagze-zero yung taxable net income nila, kaya kahit anong
multiply sa income tax rate of 30% eh mag-zero talaga). Kaya nagtataka yung
lawmakers: “bakit ang dating corporation nalugi, kaya zero tax”? Tapos ang sunod
nilang tanong, “gaano na katagal nalugi? Kasi Hindi normal sa isang engaged sa trade
or business na ikaw ay nagpupursigeng magbusiness kung ikaw ay lugi. Edi para kang
nagpagod sa sarili kung ikaw ay malulugi ng sunund sunod na taon.” So napansin nila
na ang period ng most of these corporations na nag declare ng zero payments is more
than 4 years. Eh pag lugi ng mahabang panahon ang mga korporasyon walang
binayarang buwis edi nalugi ang gobyerno. At the same time, ang gobyerno has admin
cost in maintaining the corporation kasi syempre may regulatory expenses ang
gobyerno. This is the perfect example of the government na babawian ka. Kasi hindi
pwedeng lugi ang gobyerno, kasi yung buwis na binabayad mo iyan ang
nagkoconstitute ng budget ng gobyerno para sa kanyang expenditures. Eh kung lagi
kang lugi, eh hindi ka nagko-contribute sa budget ng gobyerno. Bawal yun. Kaya sabi
ng batas, babawian kita.

-> The 2% minimum corporate income tax is imposed on domestic corporations
beginning the 4th year following the commencement of its operations provided that the
2% on the gross is higher than the net income tax.
-> limited only to the income from Philippine sources.
- not applicable

Review Lecture
(7) Improperly Accumulated Earnings Tax
- In addition to the regular kinds of corporate taxes being paid by a domestic corp
- Concept of bawi-bawi
- Rate: 10% FWT
- Income tax applied: on all earnings of the corporations which are retained beyond
reasonable business needs.
Example: XYZ Corp, a domestic corp, required syang ipamigay yung kita nya sa
stockholders (yun ay dividends), pero di lahat kasi dapat magretain sya para sa
business operations ng corporation. Pag namigay is XYZ, expense sa kanya pero kita
sa kanyang stockholder. Pag ang stockholder ay tao, yung dividends na tinanggap nya
from the domestic corp ay passive income na subject to 10% FWT, sya ang
magbabayad ng buwis na yun sa gobyerno. When the stockholder is a domestic
corporation, ang sabi natin, you call it Inter-Corporate Dividends Tax. So pag DC to DC
ay exempt sya, so no tax.
Ngayon paano kung yung korporasyon ayaw mamigay ng kita at kinamkam nya yung
kita nya. Nawala sa gobyerno yung babayaran na buwis (yang 10% FWT na babayaran
ng stockholder na tao). So ang gobyerno ay nalugi ng 10%. Kaya sabi ng batas,
korporasyon, ikaw naman ay nagdamot, kaya ikaw ay magbabayad ng Improperly
Accumulated Earnings Tax at the rate of 10%, which is the same rate na nawala sa
gobyerno.
- not applicable

- not applicable

Review Lecture
—————————————————————————————————
SECTION 30, TAX CODE correlated with the Constitutional Limitations:
TYPE OF REAL PROPERTY INCOME TAX DONOR’S TAX OR ESTATE TAX GIFTS
INSTITUTION TAX GIVEN
RELIGIOUS (a) EXEMPTED = It depends on (1) DONOR’S TAX:

EXEMP
INSTITUTIONS actually, the source of TED;
directly and income:
(a) EXEMPTED = 30% of it is used EXCLU
exclusively (a) EXEMPTED for educational purpose
DED IN
used for = as long (b) NOT EXEMPTED = below 30%
THE
religious as it is COMP
purposes
actually, (2) ESTATE TAX:
UTATIO
(b) NOT directly and (a) EXEMPTED = 30% of it is used N OF
EXEMPTED = if exclusively for educational purpose
GROS
used for profit used for (b) NOT EXEMPTED = below 30%
S
(not actually, religious INCOM
directly and purposes E
exclusively (proof Can the donor deduct this donation
used for through from his/her estate:
religious audited
purposes) financial (1) COMPENSATION INCOME
statements EARNER = not deductible
must be (2) SELF EMPLOYED

shown)
PROFESSIONAL = deductible up
(b) NOT to 10% of taxable income prior
EXEMPTED to the giving of the gift/donation
= subjected (3) SELF EMPLOYED INDIVIDUAL =

to 30% NIT, deductible up to 10% of taxable
if income is income prior to the giving of the
realized gift/donation
from profit (4) MIXED INCOME EARNER =

and not deductible up to 10% of taxable
ADE from income prior to the giving of the
religious gift/donation
purpose
(5) CORPORATION = deductible up
to 5% of taxable income prior to
For bank the giving of the gift/donation
deposits =
subject 20%
FWT

Review Lecture
Charitable (a) EXEMPTED = It depends on (1) DONOR’S TAX:
EXEMP
Institutions actually, the source of TED;
directly and income:
(a) EXEMPTED = 30% of it is used EXCLU
exclusively (a) EXEMPTED for educational purpose
DED IN
used for = as long (b) NOT EXEMPTED = below 30%
THE
charitable as it is COMP
purposes
actually, (2) ESTATE TAX:
UTATIO
(b) NOT directly and (a) EXEMPTED = 30% of it is used N OF
EXEMPTED = if exclusively for educational purpose
GROS
used for profit used for (b) NOT EXEMPTED = below 30%
S
(not actually, charitable INCOM
directly and purposes E
exclusively (proof Can the donor deduct this donation
used for through from his/her estate:
charitable audited
purposes) financial (1) COMPENSATION INCOME
statements EARNER = not deductible
must be (2) SELF EMPLOYED

shown)
(b) NOT to 10% of taxable income prior
EXEMPTED to the giving of the gift/donation
= subjected (3) SELF EMPLOYED INDIVIDUAL =

to 30% NIT, deductible up to 10% of taxable
if income is income prior to the giving of the
realized gift/donation
from profit (4) MIXED INCOME EARNER =

and not deductible up to 10% of taxable
ADE from income prior to the giving of the
charitable gift/donation
purpose
For bank the giving of the gift/donation
deposits =
subject 20%
FWT

Review Lecture
NON STOCK/ (a) EXEMPTED = EXEMPTED = (1) DONOR’S TAX:
EXEMP
NON PROFIT actually, as long as it is TED;
EDUCATIONA directly and actually, (a) EXEMPTED = 30% of it is used EXCLU
L exclusively directly and for educational purpose
DED IN
INSTITUTION used for exclusively (b) NOT EXEMPTED = below 30%
THE
educational used for COMP
purposes
educational (2) ESTATE TAX:
UTATIO
(b) NOT purposes (a) EXEMPTED = 30% of it is used N OF
EXEMPTED = if (proof through for educational purpose
GROS
used for profit audited (b) NOT EXEMPTED = below 30%
S
(not actually, financial INCOM
directly and statements E
exclusively must be Can the donor deduct this donation
used for shown) from his/her estate:
educational
purposes) (1) COMPENSATION INCOME
EARNER = not deductible
(2) SELF EMPLOYED

to 10% of taxable income prior
to the giving of the gift/donation
(3) SELF EMPLOYED INDIVIDUAL =

deductible up to 10% of taxable
income prior to the giving of the
gift/donation
(4) MIXED INCOME EARNER =

gift/donation

the giving of the gift/donation

Review Lecture
PROPRIETARY (a) EXEMPTED = NOT (1) DONOR’S TAX:
EXEMP
EDUCATIONA actually, EXEMPTED = if TED;
L directly and used for profit (a) EXEMPTED = 30% of it is used EXCLU
INSTITUTION exclusively (not actually, for educational purpose
DED IN
used for directly and (b) NOT EXEMPTED = below 30%
THE
educational exclusively COMP
purposes
used for (2) ESTATE TAX:
UTATIO
(b) NOT educational (a) EXEMPTED = 30% of it is used N OF
EXEMPTED = if purposes):
for educational purpose
GROS
used for profit (b) NOT EXEMPTED = below 30%
S
(not actually, Determine INCOM
directly and income E
exclusively received from Can the donor deduct this donation
used for both related from his/her estate:
educational and unrelated

purposes) trade activity
(1) COMPENSATION INCOME
(2) SELF EMPLOYED

If the income of PROFESSIONAL = deductible up
a proprietary to 10% of taxable income prior
educational to the giving of the gift/donation
institution from (3) SELF EMPLOYED INDIVIDUAL =

unrelated trade
activity:
gift/donation

(a) does not
exceed 50% of income prior to the giving of the
its total income gift/donation
= 10% NIT
(b) exceeds the giving of the gift/donation
50% of its total
income = 30%
NIT

Review Lecture
GOVERNMEN (a) EXEMPTED = EXEMPTED = (1) DONOR’S TAX: EXEMPTED
EXEMP
T actually, as long as it is (2) ESTATE TAX: EXEMPTED
TED;
EDUCATIONA directly and actually, EXCLU
L exclusively directly and -> When you donate, whether inter DED IN
INSTITUTION used for exclusively vivos or mortis causa in favor of the THE
educational used for Government, the same shall not be COMP
purposes
educational subject to donor’s tax or estate tax, UTATIO
(b) NOT purposes without any restriction of 30%. The N OF
EXEMPTED = if (proof through entire thing shall not be subject to GROS
used for profit audited estate tax or donor’s tax. Since this S
(not actually, financial is considered transfer for public use, INCOM
directly and statements under Sec 86 (6), and Secs 101 (A)(1) E
exclusively must be or (B)(1), Tax Code.
used for shown) -

educational Can the donor deduct this donation exempt
purposes) from his/her estate:
ed from
paying
(1) COMPENSATION INCOME custom
duties
(2) SELF EMPLOYED
PROFESSIONAL = deductible in
full only if it is declared to be a
priority project of the
Government; if it is not declared
as such, deductible up to 10%
of taxable income prior to the
giving of the gift/donation

deductible in full only if it is
declared to be a priority project
of the Government; if it is not
declared as such, deductible up

(5) CORPORATION = deductible in

as such, deductible up to 5% of
taxable income prior to the

Review Lecture
EXEMP
CHARITABLE directly and actually, (a) EXEMPTED = 30% of it is used EXCLU
INSTITUTION exclusively directly and for charitable purpose
DED IN
used for exclusively (b) NOT EXEMPTED = below 30%
THE
charitable used for COMP
purposes
charitable (2) ESTATE TAX:
UTATIO
EXEMPTED = if (proof through for charitable purpose
GROS
S
charitable
(2) SELF EMPLOYED


gift/donation

gift/donation


Review Lecture
EXEMP
RELIGIOUS directly and actually, (a) EXEMPTED = 30% of it is used EXCLU
INSTITUTION exclusively directly and for religious purpose
DED IN
used for exclusively (b) NOT EXEMPTED = below 30%
THE
religious used for COMP
purposes
religious (2) ESTATE TAX:
UTATIO
EXEMPTED = if (proof through for religious purpose
GROS
S
religious
(2) SELF EMPLOYED


gift/donation

gift/donation


Review Lecture
PROPRIETARY (a) EXEMPTED = NOT (1) DONOR’S TAX:
EXEMP
HOSPITAL actually, EXEMPTED = if TED;
directly and used for profit (a) EXEMPTED = 30% of it is used EXCLU
exclusively (not actually, for educational purpose
DED IN
used for directly and (b) NOT EXEMPTED = below 30%
THE
educational exclusively COMP
purposes
used for (2) ESTATE TAX:
UTATIO
(b) NOT educational (a) EXEMPTED = 30% of it is used N OF
EXEMPTED = if purposes):
for educational purpose
GROS
used for profit (b) NOT EXEMPTED = below 30%
S
(not actually, Determine INCOM
directly and income E
exclusively received from Can the donor deduct this donation
used for both related from his/her estate:
educational and unrelated

purposes) trade activity
(1) COMPENSATION INCOME
(2) SELF EMPLOYED

If the income of PROFESSIONAL = deductible up
a proprietary to 10% of taxable income prior
educational to the giving of the gift/donation
institution from (3) SELF EMPLOYED INDIVIDUAL =

unrelated trade
activity:
gift/donation

(a) does not
exceed 50% of income prior to the giving of the
its total income gift/donation
= 10% NIT
(b) exceeds the giving of the gift/donation
50% of its total
income = 30%
NIT

Review Lecture
GOVERNMEN (a) EXEMPTED = EXEMPTED (1) DONOR’S TAX: EXEMPTED
EXEMP
TAL No RPT since it (2) ESTATE TAX: EXEMPTED
TED;
AGENCIES is owned by
= since it is EXCLU
PERFORMING the Republic of one of the -> When you donate, whether inter DED IN
GOVERNMEN the Philippines items of vivos or mortis causa in favor of the THE
TAL and the Government, the same shall not be COMP
FUNCTIONS beneficial use exclusions subject to donor’s tax or estate tax, UTATIO
pertains to the from the without any restriction of 30%. The N OF
Government.
entire thing shall not be subject to GROS
computation
(b) NOT estate tax or donor’s tax. Since this S
EXEMPTED = of the gross is considered transfer for public use, INCOM
This is subject income, under Sec 86 (6), and Secs 101 (A)(1) E
to RPT, even if or (B)(1), Tax Code.
it is owned by thus, it
the Republic of cannot be Can the donor deduct this donation
the Philippines, from his/her estate:
subjected to
because the
beneficial use tax. (1) COMPENSATION INCOME
pertains to a EARNER = not deductible
non exempt (2) SELF EMPLOYED

entity. PROFESSIONAL = deductible in




Review Lecture
GOVERNMEN (a) EXEMPTED = NOT (1) DONOR’S TAX: EXEMPTED
EXEMP
TAL No RPT since it EXEMPTED = it (2) ESTATE TAX: EXEMPTED
TED;
AGENCIES is owned by may be EXCLU
PERFORMING the Republic of subjected to -> When you donate, whether inter DED IN
PROPRIETARY the Philippines tax rate of vivos or mortis causa in favor of the THE
FUNCTIONS and the 30%. All other Government, the same shall not be COMP
beneficial use taxes which are subject to donor’s tax or estate tax, UTATIO
pertains to the applicable to a without any restriction of 30%. The N OF
Government.
domestic entire thing shall not be subject to GROS
(b) NOT corporation, estate tax or donor’s tax. Since this S
EXEMPTED = shall be is considered transfer for public use, INCOM
This is subject applicable to under Sec 86 (6), and Secs 101 (A)(1) E
to RPT, even if the income of or (B)(1), Tax Code.
it is owned by governmental
the Republic of agencies Can the donor deduct this donation
the Philippines, realized from from his/her estate:
because the its proprietary

beneficial use functions. (1) COMPENSATION INCOME
pertains to a EARNER = not deductible
non exempt (2) SELF EMPLOYED

entity. PROFESSIONAL = deductible in




Review Lecture
(1) Charitable Institutions

- 1987 Constitution: Churches, convents, non-profit cemeteries, parsonages, mosques
(including all their lands, real properties and improvements which are actually,
directly, and exclusively (ADE) used for charitable, religious and educational
purposes shall be exempted from real property tax)
- Local Government Code of 1991: II. Real Property Taxation
Example: Home For The Aged. Merong 3 buildings, 1 office and 1 library. Tapos sa gelid
ng kalye nya, pinaparentahan sa McDo, Jollibee at KFC.
Sinong may ari? = Home For The Aged.
Pertinent provision under Tax Code? = A domestic corporation, a charitable institution

which according to Sec 30, falls under paragraph e: Nonstock corporation or association
organized and operated exclusively for religious, charitable, scientific, athletic, or
cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset
shall belong to or inure to the benefit of any member, organizer, officer or any specific
person.
Pertinent provision under the 1987 Constitution? = Section 28, Article 6, 1987
Constitution
A. REAL PROPERTY TAX
Ano yung mga exempted na land or building sa RPT kasi ADE? = 3 buildings, office and
library.
Ano yung mga hindi exempted na land or building kasi hindi ADE? = McDo, Jollibee and
KFC (this is the portion of home for the aged that it leased out to these establishments
for profit)
B. INCOME TAX
Kumikita yung Home for the Aged kasi gumagawa sila ng mga basahan and christmas
cards tapos nakarealized sila ng income worth P1M. Then nagbabayad ng rentals sila
McDo, Jollibee and KFC worth P500k.

Review Lecture
Is the P1M considered income? YES, it is income within. But it is not taxable since this
is an income received by them as such under Sec 30.
Is the P500k considered income? YES, it is income within. Yes, it is subject to income
tax at the rate of 30%. Reason: the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from any of
their activities conducted for profit regardless of the disposition made of such income,
shall be subject to tax imposed under this Code.
Pano pag ginamit yung P500k for charitable purpose? = Hindi pa din sya mata-tax
exempt. The use or disposition for charitable purpose shall not make such type of
income exempted from payment of income tax.
Let’s say na nilagay yung kinita nila na P1.5M (P1M + P500k) sa bangko sa isang peso
account. Kumita ng interest on bank deposits, let’s say P20k.
Is the P20k interest considered income? = YES, it is income within since it was issued
by a domestic bank and it is taxable. It is an income derived from an activity conducted
for profit. Since bank deposits are under passive income, it should be taxed at the rate
of 20% FWT. Reason: the income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from any of their activities
conducted for profit regardless of the disposition made of such income, shall be subject
to tax imposed under this Code.
C. DONOR’S TAX/ESTATE TAX
Nagbigay si X sa Home For The Aged ng halagang P2M.
-> Since galing ito sa labas, hindi sya sakop ng constitutional exemption and Sec 30
(kasi income from operations yun)
Is the P2M considered as income? YES, it is income within. It is not taxable, because
according to Sec 32 (B): Gifts, Bequests, and Devises. — The value of property

Review Lecture
acquired by gift, bequest, devise, or descent: Provided, however, That income from
such property, as well as gift, bequest, devise, or descent of income from any property,
in cases of transfers of divided interest, shall be included in gross income.
Is it subject to donor’s tax or estate tax?
= DONOR’S TAX if it is made donation inter vivos (during the lifetime of the donor and
the donee): EXEMPTED if 30% of it is used by the Home for the aged for charitable
purposes. Sec 101 (A)(2), Tax Code provides: Gifts in favor of an educational and/or
charitable, religious, cultural or social welfare corporation, institution, accredited
nongovernment organization, trust or philantropic organization or research institution or
organization: Provided, however, That not more than thirty percent (30%) of said gifts
shall be used by such donee for administration purposes. For the purpose of this
exemption, a ‘non-profit educational and/or charitable corporation, institution, accredited
nongovernment organization, trust or philanthropic organization and/or research
institution or organization’ is a school, college or university and/or charitable corporation,
accredited nongovernment organization, trust or philanthropic organization and/or
research institution or organization, incorporated as a nonstock entity, paying no
dividends, governed by trustees who receive no compensation, and devoting all its
income, whether students’ fees or gifts, donations, subsidies or other forms of
philanthropy, to the accomplishment and promotion of the purposes enumerated in its
Articles of Incorporation
= ESTATE TAX if it is made donation mortis causa (after the lifetime of the donor):
EXEMPTED if 30% of it is used by the Home for the aged for charitable purposes. Sec
87 (D), Tax Code provides: All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income of which inures to the
benefit of any individual: Provided, however, That not more than thirty percent (30%) of
the said bequests, devises, legacies or transfers shall be used by such institutions for
administration purposes.
Is the donation of P2M deductible from X’s gross income? Kasi when you donate, it is a
form of reducing your tax due because it is an authorized deduction. Sec 34 (H), Tax
Code:
= if X was a compensation income earner - not deductible; deduction is not available
= if X was a self employed individual - deductible; allowed to claim up to 10% taxable

income prior to this gift/donation

Review Lecture
= if X was a self employed professional - deductible; allowed to claim up to 10% taxable
= if X was a mixed income earner - deductible; allowed to claim up to 10% taxable

= if X was a corporation - deductible; allowed to claim up to 5% taxable income prior to

this gift/donation
(2) Religious Institutions

Example: Ang simbahan asa gitna. Sa left side nya ang parsonage. Tapos sa right side
nya ay yung office and kitchen then sa likod nya yung parking lot. Sa left nung
parsonage ay merong pinarerentahan na lupa para sa McDo, KFC and Jollibee.
Pertinent provision under Tax Code? = A domestic corporation, a charitable institution

which according to Sec 30, falls under paragraph e: Nonstock corporation or association
organized and operated exclusively for religious, charitable, scientific, athletic, or
cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset
shall belong to or inure to the benefit of any member, organizer, officer or any specific
person.
Pertinent provision under the 1987 Constitution? = Section 28, Article 6, 1987
Constitution

Review Lecture
Ano yung mga exempted na land or building sa RPT kasi ADE? = parsonage, office,
parking lot and kitchen.
KFC (this is the portion of the church that it leased out to these establishments for profit)
B. INCOME TAX
Kumikita yung simbahan dahil sa pa-misa, binyag, kumpil, kasal, pag may patay. Lahat
ng yan nagbabayad ka sa simbahan or church services. Then nagbabayad ng rentals
sila McDo, Jollibee and KFC.
Is the income received from church services considered income? YES, it is income
within. But it is not taxable since this is an income received by them as such under Sec
30.
Are the rental payments received from McDo, Jollibee and KFC considered income?
YES, it is income within. Yes, it is subject to income tax at the rate of 30%. Reason: the
income of whatever kind and character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities conducted for profit regardless
of the disposition made of such income, shall be subject to tax imposed under this
Code.
Let’s say na nilagay yung kinita nila sa bangko sa isang peso account. Kumita ng
interest on bank deposits, let’s say P20k.

Review Lecture
Nagdonate si X sa simbahan ng halagang P2M, sa paniniwala na pag nagbigay ka sa

simbahan, ika’y pupunta sa langit.
the donee): EXEMPTED if 30% of it is used by the church for administrative religious
EXEMPTED if 30% of it is used by the church for administrative religious purposes. Sec

Review Lecture
Code:




this gift/donation
(3) Non-stock/Non-profit Charitable Institutions
-> All revenue and assets of non stock/non profit charitable institutions which are
actually, directly and exclusively used for charitable purpose shall be exempted from
taxes and duties
Pertinent provision under the 1987 Constitution = Sec. 28: Charitable institutions,
churches and personages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational purposes shall be exempt from
taxation.

Review Lecture
If ADE, they are exempted from: Real property tax, all internal revenue taxes and tariffs
and custom duties.
For the purpose of this exemption, a ‘non-profit educational and/or charitable

corporation, institution, accredited nongovernment organization, trust or philanthropic
organization and/or research institution or organization’ is a school, college or university
and/or charitable corporation, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or organization, incorporated as a
nonstock entity, paying no dividends, governed by trustees who receive no
compensation, and devoting all its income, whether students’ fees or gifts, donations,
subsidies or other forms of philanthropy, to the accomplishment and promotion of the
purposes enumerated in its Articles of Incorporation
EXEMPTED = ADE used for charitable purpose, not subject to RPT
NOT EXEMPTED = used for profit, subject to RPT
B. INCOME TAX
Pursuant to the Constitution, any type of income, all revenues of a non stock non profit
charitable institution of whatever kind, shall not be subject to income tax as long as
there is proof that it is actually directly and exclusively used for charitable purposes.
Kumikita yung charitable institution ng P2M. Then nagbabayad ng rentals sila McDo,
Jollibee and KFC amounting to P1M.
Pano pag ginamit yung P2M na kita for charitable purpose? = Tax exempt na basta ADE
used for charitable l purpose; YES, it is income within. But it is not taxable since this is
an income received by them as such under Sec 30.
Pano pag ginamit yung P1M na payment rentals for charitable purpose? = Tax exempt
na basta ADE used for charitable purpose. There must be proof that it was ADE used
for charitable purpose (best proof is the audited financial statements of the non stock
non profit charitable institutions).

Review Lecture
by a domestic bank and tax exempt na basta ADE used for charitable purpose. There
must be proof that it was ADE used for charitable purpose (best proof is the audited
financial statements of the non stock non profit charitable institutions).
Nagdonate si X sa charitable institution ng halagang P2M.
the donee): EXEMPTED if 30% of it is used by the institution for charitable purposes.
Sec 101 (A)(2), Tax Code provides: Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation, institution, accredited nongovernment
organization, trust or philantropic organization or research institution or organization:
Provided, however, That not more than thirty percent (30%) of said gifts shall be used
by such donee for administration purposes. For the purpose of this exemption, a ‘non-
profit educational and/or charitable corporation, institution, accredited nongovernment
organization, trust or philanthropic organization and/or research institution or
organization’ is a school, college or university and/or charitable corporation, accredited
institution or organization, incorporated as a nonstock entity, paying no dividends,
governed by trustees who receive no compensation, and devoting all its income,
whether students’ fees or gifts, donations, subsidies or other forms of philanthropy, to
the accomplishment and promotion of the purposes enumerated in its Articles of
Incorporation

Review Lecture
EXEMPTED if 30% of it is used by the institution for charitable purposes. Sec 87 (D),
Tax Code provides: All bequests, devises, legacies or transfers to social welfare, cultural
and charitable institutions, no part of the net income of which inures to the benefit of any
individual: Provided, however, That not more than thirty percent (30%) of the said
bequests, devises, legacies or transfers shall be used by such institutions for
Code:




this gift/donation
(4) Non-stock/Non-profit Religious Institutions
-> All revenue and assets of non stock/non profit religious institutions which are actually,
directly and exclusively used for religious purpose shall be exempted from taxes and
duties

Review Lecture
taxation.
and custom duties.
EXEMPTED = ADE used for charitable purpose, not subject to RPT
NOT EXEMPTED = used for profit, subject to RPT
B. INCOME TAX
Pursuant to the Constitution, any type of income, all revenues of a non stock non profit
religious institution of whatever kind, shall not be subject to income tax as long as there
is proof that it is actually directly and exclusively used for religious purposes.
Kumikita yung church ng P2M. Then nagbabayad ng rentals sila McDo, Jollibee and
KFC amounting to P1M.
Pano pag ginamit yung P2M na kita for religious purpose? = Tax exempt na basta ADE
used for religious purpose; YES, it is income within. But it is not taxable since this is an
income received by them as such under Sec 30.
Pano pag ginamit yung P1M na payment rentals for religious purpose? = Tax exempt na
basta ADE used for charitable purpose. There must be proof that it ADE used for
religious purpose (best proof is the audited financial statements of the non stock non
profit religious institutions).
by a domestic bank and tax exempt na basta ADE used for religious. There must be
proof that it ADE used for religious purpose (best proof is the audited financial
statements of the non stock non profit religious institutions).

Review Lecture
Nagdonate si X sa church ng halagang P2M.
the donee): EXEMPTED if 30% of it is used by the church for religious purposes. Sec
101 (A)(2), Tax Code provides: Gifts in favor of an educational and/or charitable,
by such donee for administration purposes.
EXEMPTED if 30% of it is used by the church for religious purposes. Sec 87 (D), Tax
Code provides: All bequests, devises, legacies or transfers to social welfare, cultural
Code:


Review Lecture


this gift/donation

Review Lecture
(5) Non-stock/Non-profit Educational Institutions
-> All revenue and assets of non stock/non profit educational institutions which are
actually, directly and exclusively used for educational purpose shall be exempted from
taxes and duties
taxation.
and custom duties.
Example: May sang school. Meron syang 3 buildings, 1 gym, 1 office, 1 library, 1
canteen, parking lot, at dorm. Sa left nung library ay merong pinarerentahan na lupa
para sa McDo, KFC and Jollibee.
Ano yung mga exempted na land or building sa RPT kasi ADE? = 3 buildings, 1 gym, 1
office, 1 library, 1 canteen, parking lot, at dorm.
KFC (this is the portion of the school that it leased out to these establishments for profit)
B. INCOME TAX
*Take note: De La Salle University vs CIR case = Consti vs Sec 30, Tax Code = Consti
will prevail. The exemption of a non stock non profit educational institution is
constitutionally guaranteed and Sec 30 of the Tax Code in so far as a non stock non
profit educational institution is concerned, is declared null and void. Pursuant to the

Review Lecture
Constitution, any type of income, all revenues of a non stock non profit educational
institution of whatever kind, shall not be subject to income tax as long as there is proof
that it is actually directly and exclusively used for educational purposes.
Kumikita yung school dahil sa tuition fee, sabihin natin P2M. Then nagbabayad ng
rentals sila McDo, Jollibee and KFC amounting to P1M.
Pano pag ginamit yung P2M na kita for educational purpose? = Tax exempt na basta
ADE used for educational purpose; YES, it is income within. But it is not taxable since
this is an income received by them as such under Sec 30.
Pano pag ginamit yung P1M na payment rentals for educational purpose? = Tax exempt
na basta ADE used for educational purpose. There must be proof that it ADE used for
educational purpose (best proof is the audited financial statements of the non stock non
profit educational institutions).
by a domestic bank and tax exempt na basta ADE used for educational purpose. There
must be proof that it ADE used for educational purpose (best proof is the audited
financial statements of the non stock non profit educational institutions).
Nagdonate si X sa school ng halagang P2M.

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the donee): EXEMPTED if 30% of it is used by the school for educational purposes. Sec
Incorporation
EXEMPTED if 30% of it is used by the school for educational purposes. Sec 87 (D), Tax
Code:




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this gift/donation

Review Lecture
(6) Proprietary Educational Institutions
-> All revenue and assets of non stock/non profit educational institutions which are
actually, directly and exclusively used for educational purpose shall be exempted from
taxes and duties
Pertinent provision under the 1987 Constitution = Sec. 4 (3), Art 14: All revenues and
assets of non-stock, non-profit educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions, their assets shall
be disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned, may likewise
be entitled to such exemptions, subject to the limitations provided by law, including
restrictions on dividends and provisions for reinvestment.
Example: May isang school. Meron syang 3 buildings, 1 gym, 1 office, 1 library, 1
Ano yung mga exempted na land or building sa RPT kasi ADE? = 3 buildings, 1 gym, 1
office, 1 library, 1 canteen, parking lot, at dorm. (Basis: Secs 2-4, Local Government
Code of 1991)
KFC (this is the portion of the school that it leased out to these establishments for
profit). So magbabayad ng RPT. (Basis: Secs 2-4, Local Government Code of 1991)
B. INCOME TAX

Review Lecture
Apply: Sec 27 (B), Tax Code: if the income of a proprietary educational institution from
unrelated trade activity does not exceed 50% of its total income, then the preferential
rate of 10% shall be applied. Conversely, if the income of an unrelated trade activity
exceeds 50% of its total income, then the regular NIT rate of 30% will be applied.
Situation #1: Kumikita yung school dahil sa tuition fee, sabihin natin P2M. Then
nagbabayad ng rentals sila McDo, Jollibee and KFC amounting to P1M.
Ano yung kita na P2M? = related trade activity
Ano yung kata na P1M? = unrelated trade activity
Ano yung total income nung proprietary educational institution = P3M
50% of the total income = P1.5M
Application of Sec 27 (B) = if the income of a proprietary educational institution from

unrelated trade activity (P1M) does not exceed 50% of its total income (P1.5M in this
case), then the preferential rate of 10% shall be applied.
Situation #2: Kumikita yung school dahil sa tuition fee, sabihin natin P1M. Then
nagbabayad ng rentals sila McDo, Jollibee and KFC amounting to P2M.
Ano yung total income nung proprietary educational institution = P3M
Application of Sec 27 (B) = if the income of an unrelated trade activity (P2M) exceeds
50% of its total income (P1.5M), then the regular NIT rate of 30% will be applied.

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Incorporation

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Code:




this gift/donation

Review Lecture
(7) Government Educational Institutions
-> examples: public elementary schools, public high schools, science high schools, and
state universities
Pertinent provision under the Tax Code = Sec. 30 (I).
Example: May isang school. Meron syang 3 buildings, 1 gym, 1 office, 1 library, 1
Ano yung mga exempted na land or building sa RPT? = 3 buildings, 1 gym, 1 office, 1
library, 1 canteen, parking lot, at dorm. (Basis: Secs 2-4, Local Government Code of
1991). No RPT since it is owned by the Republic of the Philippines and the beneficial
use pertains to the Government.
Ano yung mga hindi exempted na land or building sa RPT? = McDo, Jollibee and KFC
(this is the portion of the school that it leased out to these establishments for profit). This
is subject to RPT, because the beneficial use pertains to a non exempt entity.
B. INCOME TAX
Kumikita yung school dahil sa tuition fee, sabihin natin P2M. Then nagbabayad ng
rentals sila McDo, Jollibee and KFC amounting to P1M.
Is P2M received as tuition fee considered income? YES, it is income within. But it is not
taxable since this is an income received by them as such under Sec 30.

Review Lecture
Is P1M received from McDo, Jollibee and KFC considered income? YES, it is income
within. Yes, it is subject to income tax at the rate of 30%. Reason: the income of
whatever kind and character of the foregoing organizations from any of their properties,
real or personal, or from any of their activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed under this Code.
Pano pag ginamit yung P1Mk for educational purpose? = Hindi pa din sya mata-tax
exempt. The use or disposition for educational purpose shall not make such type of
Pano pag ginamit yung P20k for educational purpose? = Hindi pa din sya mata-tax
exempt. The use or disposition for educational purpose shall not make such type of
Nagdonate si X sa public school ng halagang P2M.

Review Lecture
When you donate, whether inter vivos or mortis causa in favor of the Government, the
same shall not be subject to donor’s tax or estate tax, without any restriction of 30%.
The entire thing shall not be subject to estate tax or donor’s tax. Since this is considered
transfer for public use, under Sec 86 (6), and Secs 101 (A)(1) or (B)(1), Tax Code.
Code:

because a compensation income earner is not allowed to claim any deduction.
= if X was a self employed individual - deductible in full only if it is declared to be a

priority project of the Government; if it is not declared as such, then only allowed to
claim up to 10% taxable income prior to this gift/donation
= if X was a self employed professional - deductible in full only if it is declared to be a

= if X was a mixed income earner - deductible in full only if it is declared to be a priority

project of the Government; if it is not declared as such, then only allowed to claim up to
10% taxable income prior to this gift/donation
= if X was a corporation - deductible in full only if it is declared to be a priority project of

the Government; if it is not declared as such, then only allowed to claim up to 5%
taxable income prior to this gift/donation

Review Lecture
(8) Proprietary Hospital
-> All revenue and assets of non stock/non profit proprietary hospitals institutions which
are actually, directly and exclusively used for charitable purpose shall be exempted from
taxes and duties
Pertinent provision under the 1987 Constitution = Sec. 4 (3), Art 14: All revenues and
assets of non-stock, non-profit educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions, their assets shall
be disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned, may likewise
be entitled to such exemptions, subject to the limitations provided by law, including
restrictions on dividends and provisions for reinvestment.
If its land or building is ADE used for charitable purpose? = EXEMPTED, not subject to
RPT
If its land or building is not ADE used but for profit? = NOT EXEMPTED, subject to RPT
B. INCOME TAX
Apply: Sec 27 (B), Tax Code: if the income of a proprietary hospital from unrelated trade
activity does not exceed 50% of its total income, then the preferential rate of 10% shall
be applied. Conversely, if the income of an unrelated trade activity exceeds 50% of its
total income, then the regular NIT rate of 30% will be applied.
Situation #1: Kumikita yung hospital dahil sa services nila ng P2M. Then nagbabayad
ng rentals sila McDo, Jollibee and KFC amounting to P1M.

Review Lecture
Ano yung total income nung proprietary hospital = P3M
Application of Sec 27 (B) = if the income of a proprietary hospital from unrelated trade
activity (P1M) does not exceed 50% of its total income (P1.5M in this case), then the
preferential rate of 10% shall be applied.
Situation #2: Kumikita yung hospital dahil sa services nila ng P1M. Then nagbabayad
ng rentals sila McDo, Jollibee and KFC amounting to P2M.
Ano yung total income nung proprietary hospital = P3M
Application of Sec 27 (B) = if the income of an unrelated trade activity (P2M) exceeds
50% of its total income (P1.5M), then the regular NIT rate of 30% will be applied.

Review Lecture
Incorporation
Code:


Review Lecture


this gift/donation
(9) Non-stock/Non-profit (Charitable) Hospital

- Tax Code provision: Sec 30 (E) = Nonstock corporation or association organized and
operated exclusively for religious, charitable, scientific, athletic, or cultural purposes,
or for the rehabilitation of veterans, no part of its net income or asset shall belong
to or inure to the benefit of any member, organizer, officer or any specific person
- Pertinent provision under the 1987 Constitution? = Section 28, Article 6, 1987
Constitution
Take note of the case: St Luke’s Medical Center vs. CIR
If its land or building is ADE used for charitable purpose? = EXEMPTED, not subject to
RPT
If its land or building is not ADE used but for profit? = NOT EXEMPTED, subject to RPT

Review Lecture
B. INCOME TAX
Kumikita yung charitable hospital dahil sa mga services nila ng income worth P1M.
Then nagbabayad ng rentals sila McDo, Jollibee and KFC worth P500k.
Is the P1M considered income? YES, it is income within. But it is not taxable since this
is an income received by them as such under Sec 30.
Is the P500k considered income? YES, it is income within. Yes, it is subject to income
tax at the rate of 30%. Reason: the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from any of
their activities conducted for profit regardless of the disposition made of such income,
shall be subject to tax imposed under this Code.
Let’s say na nilagay yung kinita nila na P1.5M (P1M + P500k) sa bangko sa isang peso
account. Kumita ng interest on bank deposits, let’s say P20k.

Review Lecture
Nagbigay si X sa charitable hospital Aged ng halagang P2M.
the donee): EXEMPTED if 30% of it is used by the Home for the aged for charitable
EXEMPTED if 30% of it is used by the Home for the aged for charitable purposes. Sec

Review Lecture
Code:




this gift/donation
(10) Governmental Agencies performing governmental functions
GR: Government cannot tax itself.
A. Real Property Tax (Basis: Secs 2-4, Local Government Code of 1991)
- EXEMPTED: No RPT since it is owned by the Republic of the Philippines and the
beneficial use pertains to the Government
- NOT EXEMPTED: This is subject to RPT, even if it is owned by the Republic of the
Philippines, because the beneficial use pertains to a non exempt entity.
B. Income Tax

Review Lecture
- Income of governmental agencies from the exercise of its governmental functions is
one of the items of exclusions from the computation of the gross income, thus, it
cannot be subjected to tax. BASIS: Sec 32 (B) (7) (a) and (b), Tax Code.
Nagdonate si X sa government agency ng halagang P2M.
Code:




Review Lecture

(11) Governmental Agencies performing proprietary functions
GR: Government cannot tax itself.
A. Real Property Tax (Basis: Secs 2-4, Local Government Code of 1991)
- EXEMPTED: No RPT since it is owned by the Republic of the Philippines and the
beneficial use pertains to the Government
- NOT EXEMPTED: This is subject to RPT, even if it is owned by the Republic of the
Philippines, because the beneficial use pertains to a non exempt entity.
- Income of governmental agencies from the exercise of its proprietary functions is not
exempted, thus, it may be subjected to tax rate of 30%. All other taxes which are
applicable to a domestic corporation, shall be applicable to the income of
governmental agencies realized from its proprietary functions. BASIS: Sec 32 (B) (7)
(a) and (b), Tax Code.
DONOR’S TAX/ESTATE TAX
Nagdonate si X sa government agency ng halagang P2M.

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Code:






Review Lecture
(12) GOVERNMENT OWNED AND CONTROLLED CORPORATIONS

- They are treated as ordinary domestic corporations.
GR: Subject to tax including PAGCOR
XPN: SSS, PhilHealth, PAG IBIG and PCSO.

Review Lecture
—————————————————————————————————
GROSS INCOME
MEANING OF GROSS INCOME = gross income means all items of income from
whatever source derived whether in cash or in kind [Section 32 (A), Tax Code].
GR: Lahat ng income ay taxable
XPN: Specifically expressed by law as either exempted or excluded.
- INCLUSIONS & EXCLUSIONS IN THE GROSS INCOME
I. INCLUSIONS
- pertinent provision from Tax Code: Section 32 (A)
(1) Compensation for services in whatever form paid, including, but not limited to fees,
salaries, wages, commissions, and similar items;
Taxpayer concerned: Compensation income earner
Ratio: There is an employer-employee relationship
Income: Swelduhan
Income tax rate to be applied: NIT
Subject to VAT: NO
THREE KINDS OF EMPLOYEES FOR TAX PURPOSES:

Review Lecture
KIND OF INCOME TAX OVERTIME DE MINIMIS OTHER OTHER
EMPLOYEE PAY/HOLIDAY BENEFITS BENEFITS
PAY/HAZARD
BENEFITS
PAY/NIGHT WHICH ARE
DIFFERENTIAL PROVIDED
BY THE
EMPLOYER
FOR:
(A) THE
CONVENIE
NCE OF
THE
EMPLOYER
; OR
(B)
NECESSAR
Y IN THE
TRADE OR
BUSINESS
OF THE
TAXPAYER
MANAGERIAL/ NIT (basic pay: N/A (a) IF WITHIN IF WITHIN THE EXEMPTED
SUPERVISORY compensation) LIMITS = LIMITS OF 90K
exempted = exempted
from NIT
from NIT
(b) IF
OUTSIDE IF OUTSIDE
OF LIMITS OF THE
= subjected LIMITS BUT
to NIT, CONSIDERED
since this is AS FRINGE
included in BENEFIT =
the EXEMPTED
compensati
on received

Review Lecture
RANK AND NIT (basic pay: SUBJECTED (a) IF WITHIN IF WITHIN THE EXEMPTED
FILE compensation) TO NIT, SINCE LIMITS = LIMITS OF 90K
THIS IS exempted = exempted
INCLUDED IN from NIT
from NIT
THE BASIC (b) IF

PAY OUTSIDE IF OUTSIDE
OF LIMITS OF THE
= subjected LIMITS BUT
to NIT, CONSIDERED
since this is AS FRINGE
included in BENEFIT =
the EXEMPTED
compensati
on received
MINIMUM EXEMPTED EXEMPTED (a) IF WITHIN IF WITHIN THE EXEMPTED

WAGE FROM LIMITS = LIMITS OF 90K
EARNER INCOME TAX exempted = exempted
(basic pay: from NIT
from NIT
statutory wage, (b) IF

which is hindi OUTSIDE IF OUTSIDE
umaabot ng OF LIMITS OF THE
P250k per = only the LIMITS BUT
year) excess CONSIDERED
shall be AS FRINGE
subjected BENEFIT =
to NIT EXEMPTED

Review Lecture
(2) Gross income derived from the conduct of trade or business or the exercise of a
profession;
Taxpayer concerned: Self Employed Professional
Ratio: There is no employer-employee relationship
Income: Exercise of profession
Income tax rate to be applied: choose either NIT / 8% depending on gross receipts
Subject to VAT: gross receipts exceeds P3M
(3) Gains derived from dealings in property;
(a) capital gains on shares of stocks
(b) capital gains on sales of real property
(c) ordinary gains on sale of ordinary assets
(4) Interests;
(a) on loans, debentures, promissory notes and obligations
(b) on bank deposits
(3) Rents;
(4) Royalties;
(5) Dividends;
(6) Annuities;
(7) Prizes and winnings;
(8) Pensions; and
(9) Partner’s distributive share from the net income of the general professional
partnership.

Review Lecture
II. EXCLUSIONS (these types of income are still reflected as part of your income, but
they are excluded by way of deducting it from the gross income so it cannot be
subjected to tax)
(1) Life Insurance. — The proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured, whether in a single sum or otherwise,
but if such amounts are held by the insurer under an agreement to pay interest
thereon, the interest payments shall be included in gross income.
- The proceeds of the life insurance policy are received by the insured or his heirs
upon his death or his designated beneficiaries, provided that if the insurance policy
provided for the payment of interest, then the interest shall form part of the gross
income taxable.
- Pag may namatay at ang insurance policy ay napunta sa heirs or designated
beneficiaries or kung buhay pa si insured, edi sa kanya mapupunta, the same shall
not form of his gross income, hindi sya taxable.
On estate planning: imbis na property yung ipapamana, kukuha na lang ng insurance

policy para exempted from payment of real property tax.
- Pero pag yung interest ng proceeds ng insurance policy whether received by the
insured during his lifetime or by his beneficiaries upon his death, then the interest on
the proceeds shall form part of the gross income and subject to tax.
On estate planning: hindi ide-designate yung mga anak or beneficiaries as executor/

administrator para exempted din sila from payment of estate tax.
(2) Amount Received by Insured as Return of Premium. — The amount received by the
insured, as a return of premiums paid by him under life insurance, endowment, or
annuity contracts, either during the term or at the maturity of the term mentioned in
the contract or upon surrender of the contract.
- in the first place when you pay the premiums and at the end of the day the premiums
are returned to you, that’s just mere return of capital. Therefore, no tax.

Review Lecture
(3) Gifts, Bequests, and Devises. — The value of property acquired by gift, bequest,
devise, or descent: Provided, however, That income from such property, as well as
gift, bequest, devise, or descent of income from any property, in cases of transfers
of divided interest, shall be included in gross income.
- These are items of exclusions for income tax purposes

- Donor’s tax:
GR: it is subject to tax
XPN: (1) if it is given for: (a) charitable purpose, (b) religious institution; (c) non stock/
non profit educational institution.
- Estate tax:
GR: 30% of the donation which was made to the government is used for a priority
project = then it may be deductible in full
XPN: if not used in a government priority project and:
*individual taxpayer = 10% deduction only;
*corporation = 5% deduction only.
- if the gift received realizes income then yung income na yun is subject to income tax,
but not the gift itself.
(4) Compensation for Injuries or Sickness. — Amounts received, through Accident or

Health Insurance or under Workmen’s Compensation Acts, as compensation for
personal injuries or sickness, plus the amounts of any damages received, whether
by suit or agreement, on account of such injuries or sickness.

Review Lecture
- if you get paid (even through insurance) or reimbursement due to reparation of
damages (damage to the person/self/property), then it is not subject to tax. It is an
item of exclusion whether it is real property or motor vehicle. This shall constitute as
actual damages.
- For moral damages, exemplary damages, nominal damages, and all other kinds of
damages shall form part of gross income and subject to tax. When the law speaks of
reparation of damages, it only talks about actual damages only.
(5) Income Exempt under Treaty. — Income of any kind, to the extent required by any
treaty obligation binding upon the Government of the Philippines.
- kung ang bansang Pilipinas ay pumirma ng treaty sa kapwa bansa natin at nakasulat
sa treaty na yon na lahat ng income na ire-realize arising from the treaty or activities
provided in the treaty shall not be subject to tax, so be it, because treaties are
forming part of the law of the land.
(6) Retirement Benefits, Pensions, Gratuities, etc. —
(a) Retirement benefits received under Republic Act No. 7641

and those received by officials and employees of private
firms, whether individual or corporate, in accordance with a reasonable private
benefit plan maintained by the employer: Provided, That the retiring official or
employee has been in the service of the same employer for at least ten (10) years
and is not less than fifty (50) years of age at the time of his retirement: Provided,
further, That the benefits granted under this subparagraph shall be availed of by an
official or employee only once. For purposes of this Subsection, the term
‘reasonable private benefit plan’ means a pension, gratuity, stock bonus or profit-
sharing plan maintained by an employer for the benefit of some or all of his officials
or employees, wherein contributions are made by such employer for the officials or
employees, or both, for the purpose of distributing to such officials
and employees the earnings and principal of the fund thus accumulated, and
wherein it is provided in said plan that at no time shall any part of the corpus or
income of the fund be used for, or be diverted to, any purpose other than for the
exclusive benefit of the said officials and employees.

Review Lecture
(b) Any amount received by an official or employee or by his heirs from the employer as
a consequence of separation of such official or employee from the service of the
employer because of death, sickness or other physical disability or for any cause
beyond the control of the said official or employee.
(c) The provisions of any existing law to the contrary notwithstanding, social security
benefits, retirement gratuities, pensions and other similar benefits received by
resident or nonresident citizens of the Philippines or aliens who come to reside
permanently in the Philippines from foreign government agencies and other
institutions, private or public.
(d) Payments of benefits due or to become due to any person residing in the Philippines
under the laws of the United States administered by the United States Veterans
Administration.
(e) Benefits received from or enjoyed under the Social Security System in accordance
with the provisions of Republic Act No. 8282.
(f) Benefits received from the GSIS under Republic Act No. 8291, including retirement
gratuity received by government officials and employees.

Review Lecture
GENERAL RULE: Retirement benefits and pensions cannot be subjected to tax.
PRIVATE SECTOR GOVERNMENT SECTOR
(a) PRIVATE RETIREMENT PLAN Private employer maintains a ALL RETIREMENT BENEFITS
private retirement plan, with the AND PENSIONS ARE NOT
ff requirements:
SUBJECT TO TAX
(a) at least 50 years of age;
(b) BIR-approved ang private

retirement plan;
(c) has rendered continuous

service for 10 years;
(d) no part of the fund is used

by the employer for any
purpose other than for the
benefit of the employees
(b) NO PRIVATE RETIREMENT Private employer does not ALL RETIREMENT BENEFITS
PLAN maintain a private retirement AND PENSIONS ARE NOT
plan. Applying the law, the ff SUBJECT TO TAX
requirements are:
(a) at least 60 years of age;
(b) has rendered continuous

service for 20 years
RESIGNATION (if any) If private employer provides, ALL RETIREMENT BENEFITS

then there is financial assistance AND PENSIONS ARE NOT
to be given. This is taxable. SUBJECT TO TAX

Review Lecture
DISMISSAL (without cost) Private employer has to:
ALL RETIREMENT BENEFITS
A. Reinstate you and pay you AND PENSIONS ARE NOT
with back wages, moral SUBJECT TO TAX
damages, costs of suit, and
attorney’s fees:
EXEMPTED FROM INCOME

TAX: compensation, back
wages, and moral damages
NOT EXEMPTED FROM

INCOME TAX = attorney’s fees
and costs of suit provided that
its amounts does not exceed the
amount of the award given. Yung
excess yung subject to tax.
B. Reinstatement is no longer
possible due to strained
relationship, payment of
separation pay
EXEMPTED FROM INCOME

TAX: separation pay (due to
reasons or causes beyond the
control of the employee).
NOT EXEMPTED FROM

INCOME TAX = back wages,
moral damages, attorney’s fees
and costs of suit provided that
its amounts does not exceed the
amount of the award given. Yung
excess yung subject to tax.
DISMISSAL (with cost)
INSTALLATION OF LABOR Payment of Separation Pay shall ALL RETIREMENT BENEFITS

SAVING DEVICE (retrenchment, not be subjected to tax, since AND PENSIONS ARE NOT
redundancy, automation, and this is due to reasons or causes SUBJECT TO TAX
severe business losses) beyond the control of the
employee

Review Lecture
(7) Miscellaneous Items. —
(a) Income Derived by Foreign Government. — Income derived from investments in

the Philippines in loans, stocks, bonds or other domestic securities, or from interest
on deposits in banks in the Philippines by (i) foreign governments, (ii) financing
institutions owned, controlled, or enjoying refinancing from foreign governments,
and (iii) international or regional financial institutions established by foreign
governments.
-> example: may utang na P3 zillion dollars ang Pilipinas (debtor) sa China (creditor).
So nagbabayad kayo ng interest as debtor.
Ano ang tawag sa utang natin na P3 zillion? = investment of foreign government in the
Philippines
Ano ang tawag sa interest na binabayad natin on the loan payment? = income of the
foreign government from the investments in the Philippines. Hindi ito subject sa tax sa
gross income ng foreign government, in accordance with inherent limitation on the
power of taxation yung international comity: the unwritten rule or agreement between
nations not to tax each other.
(b) Income Derived by the Government or its Political Subdivisions. — Income derived
from any public utility or from the exercise of any essential governmental function
accruing to the Government of the Philippines or to any political subdivision thereof.
-> the income of the government and political subdivisions from governmental functions
are not subject to tax because it is an item of exclusion.
(c) Prizes and Awards. — Prizes and awards made primarily in recognition of religious,
charitable, scientific, educational, artistic, literary, or civic achievement but only if:
(i) The recipient was selected without any action on his part to enter the contest or
proceeding; and

Review Lecture
(ii) The recipient is not required to render substantial future services as a condition to
receiving the prize or award.
-> EXCLUDED: for religious, charitable, scientific, educational, artistic, literary, or civic
achievement subject to two conditions. Kaya sila excluded kasi nominated sila. If you
win, hindi required magrender ng future service kasi inaavoid na ma-treat yung award or
prize mo as compensation.
(d) Prizes and Awards in Sports Competition. — All prizes and awards granted to
athletes in local and international sports competitions and tournaments whether held in
the Philippines or abroad and sanctioned by their national sports associations.
-> EXCLUDED: pinalanunan sa local and international sports competitions and

tournaments sanctioned by National Sports Associations.
(e) 13th Month Pay and Other Benefits. — Gross benefits received by officials and
employees of public and private entities: Provided, however, That the total exclusion
under this subparagraph shall not exceed Ninety thousand pesos (P90,000)1 which
shall cover:
(i) Benefits received by officials and employees of the national and local government
pursuant to Republic Act No. 6686;
(ii) Benefits received by employees pursuant to Presidential Decree No. 851, as

amended by Memorandum Order No. 28, dated August 13, 1986;
(iii) Benefits received by officials and employees not

covered by Presidential Decree No. 851, as amended by Memorandum Order No. 28,
dated August 13, 1986; and
(iv) Other benefits such as productivity incentives and Christmas bonus.
As amended by Section 9 of the TRAIN. Previous ceiling was P82,000. The prerogative of the
Secretary of Finance to increase the ceiling was removed.

Review Lecture
(f) GSIS, SSS, Medicare and Other Contributions. — GSIS, SSS, Medicare and Pag-
Ibig contributions, and union dues of individuals.
(g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. —
Gains realized from the sale or exchange or retirement of bonds, debentures or other
certificate of indebtedness with a maturity of more than five (5) years.
(h) Gains from Redemption of Shares in Mutual Fund. — Gains realized by the investor
upon redemption of shares of stock in a mutual fund company as defined in Section
22(BB) of this Code.
(i) Income Derived from the Sale of Gold Pursuant to Republic Act No. 7076. —
Income derived from the following transactions pursuant to Republic Act No. 7076,
otherwise known as the “People’s Small-scale Mining Act of 1991”:
(1) The sale of gold to the Bangko Sentral ng Pilipinas by registered small-scale
miners, as defined under Republic Act No. 7076, and accredited traders; and
(2) The sale of gold by registered small-scale miners to accredited traders for eventual
sale to the Bangko Sentral ng Pilipinas2.
EXCLUDED: 13TH MONTH PAY, SSS, GSIS, CONTRIBUTIONS TO LABOR UNIONS

(FEES THAT WE PAY), GOVERNMENT REMITTANCES
2 Introduced by Section 1 of RA No. 11256.

Review Lecture
—————————————————————————————————
ITEMS OF DEDUCTION:
TYPES OF KINDS OF INCOME TAX VAT PERCENT ITEMS OF

INDIVIDUAL TAXPAYER AGE TAX DEDUCTION
TAXPAYER (Either OSD or

ID)
- must choose
one at the
start of the
year
- Default: ID
COMPENSA RESIDENT NIT N/A N/A 0
TION CITIZEN
INCOME
EARNER
SELF RESIDENT I. Gross receipts does not I.

I.
I.
EMPLOYED CITIZEN exceed P3M =

(A) N/A
(A) Applic (A) Applicable,
PROFESSIO (a) choose NIT
(B) N/A
able
may choose
NAL (b) choose 8%
(B) N/A
between
OSD or ID
II. Gross receipts exceeds II. II. N/A (B) Zero (0)
P3M = subject to NIT Applicable deductions,
at the rate entitled to
of 12% VAT the excess
of P250k
II. Applicable,
may choose
between OSD
or ID

Review Lecture
SELF RESIDENT I. Gross sales does not I.
I.
I.
EMPLOYED CITIZEN exceed P3M =

(A) N/A
(A) Applic (A) Applicable,
INDIVIDUAL (a) choose NIT
(B) N/A
able
may choose
(b) choose 8%
(B) N/A
between
OSD or ID
II. Gross sales exceeds P3M II. II. N/A (B) Zero (0)
= subject to NIT Applicable deductions,
at the rate entitled to
of 12% VAT the excess
of P250k
II. Applicable,
may choose
between OSD
or ID

Review Lecture
MIXED RESIDENT A. Compensation = NIT
A. Compe A. Comp A. Compensati
INCOME CITIZEN B. Trade or Business:
nsation ensati on = 0
EARNER I. Gross sales does not = N/A

on = B. Trade or
exceed P3M =
B. Trade or N/A
Business:
(a) choose NIT

Busines B. Trade I. Gross sales
(b) choose 8%
s:
or does not
I. Gross Busine exceed P3M
II. Gross sales exceeds P3M sales ss:
=
= subject to NIT
does I. Gross (A) Applicable,
not sales may choose
exceed does between
C. Exercise of Profession:
P3M =
not OSD or ID
I. Gross receipts does not (a) N/A

excee (B) Zero (0)
exceed P3M =
(b) N/A
d P3M deductions,
(a) choose NIT
=
entitled to
(b) choose 8%
II. Gross (A) Applic the excess
sales able
of P250k
II. Gross receipts exceeds exceeds (B) N/A
P3M = subject to NIT P3M = II. Gross sales

Applicable II. Gross exceeds P3M =
at the rate sales Applicable, may
of 12% VAT
exceeds choose
P3M = N/ between OSD
A
or ID
C. Exercise
of C. Exercise of
Profession:
C. Profession:
I. Gross Exercise I. Gross receipts

receipts of does not
does not Profession exceed P3M =
exceed :
(A) Applicable,
P3M =
I. Gross may choose
(a) N/A
receipts between
(b) N/A
does not OSD or ID
exceed (B) Zero (0)

II. Gross P3M =
deductions,
receipts (A) Applic entitled to
exceeds able
the excess
P3M = (B) N/A
of P250k
Applicable II. Gross

at the rate II. Gross receipts
of 12% VAT receipts exceeds P3M =
exceeds Applicable, may
P3M = N/ choose
A between OSD
or ID
COMPENSA NON- NET INCOME TAX FINAL A. Trade FWT

TION RESIDENT (graduated rates) WITHHOLD or
INCOME CITIZEN ING TAX Busine
EARNER ss:

Review Lecture
SELF NON- I. Gross
EMPLOYED RESIDENT sales
PROFESSIO CITIZEN does
NAL not
excee
d P3M
=
SELF NON- (a) N/A

EMPLOYED RESIDENT
INDIVIDUAL CITIZEN
MIXED NON- (a) N/A

INCOME RESIDENT
EARNER CITIZEN
COMPENSA RESIDENT
TION ALIEN
INCOME
EARNER
SELF RESIDENT NET INCOME TAX FINAL II. Gross FINAL

EMPLOYED ALIEN (graduated rates) / 8% WITHHOLD sales WITHHOLDING
PROFESSIO TRAIN LAW ING TAX exceeds TAX
NAL P3M =
Applicable
at the rate
of 12%
VAT
SELF RESIDENT NET INCOME TAX FINAL FINAL

EMPLOYED ALIEN (graduated rates) / 8% WITHHOLD WITHHOLDING
INDIVIDUAL TRAIN LAW ING TAX TAX
MIXED RESIDENT
INCOME ALIEN
EARNER
COMPENSA NON- NET INCOME TAX FINAL C. FINAL

TION RESIDENT (graduated rates) / 8% WITHHOLD Exercise WITHHOLDING
INCOME ALIEN TRAIN LAW ING TAX of TAX
EARNER ETB Profession
:
SELF NON- I. Gross

EMPLOYED RESIDENT receipt
PROFESSIO ALIEN s does
NAL ETB not
excee
d P3M
=

Review Lecture
SELF NON- (a) N/A
EMPLOYED RESIDENT
INDIVIDUAL ALIEN
ETB
MIXED NON- (a) N/A

INCOME RESIDENT
EARNER ALIEN
ETB
x NON- 25% ON THE GROSS FINAL FINAL

RESIDENT INCOME WITHHOLD WITHHOLDING
ALIEN ING TAX TAX
NETB
SPECIAL 25% ON THE GROSS FINAL II. Gross FINAL

x NRANETB
INCOME WITHHOLD receipts WITHHOLDING
(Expats ING TAX exceeds TAX
working P3M =
for Applicable
offshore at the rate
banking of 12%
units, VAT
petroleum
oil service
contractor
s and
multinatio
nal
companies
)
KIND OF INCOME TAX VAT PERCENTAGE TAX ITEMS OF

CORPORATE DEDUCTIONS
TAXPAYER
DOMESTIC NET/CORPORATE (a) exceeds P3M (a) N/A

Applicable, may
CORPORATION INCOME TAX = APPLICABLE
(b) APPLICABLE choose between
FIXED AT 30% (b) Does not OSD or ID
exceed P3M =
not applicable
RESIDENT NET/CORPORATE FINAL FINAL NOT APPLICABLE

FOREIGN INCOME TAX WITHHOLDING WITHHOLDING
CORPORATION FIXED AT 30% TAX TAX
NON-RESIDENT GROSS INCOME GROSS INCOME FINAL NOT APPLICABLE

FOREIGN TAX OF 30% TAX OF 30% WITHHOLDING
CORPORATION TAX

Review Lecture
*Take note:
(1) Yun lang income na subject sa NIT ang allowed to make deductions. Bale ang no
deductions lang na taxpayers ay NRANETB, SPECIAL NRANETB and NRFC dahil
ang income tax nila ay Gross Income Tax (GIT).
(2) If the income is subject to FWT or GIT = no deductions may be allowed.
(3) If individual taxpayer is a purely compensation income earner = no deductions may

be allowed
(4) Two kinds of deductions:
(a) Optional Standard Deductions
(b) Itemized Deductions
-> both deductions are available to both individual and corporation taxpayers
-> you cannot have both, you have to choose one
-> either of these two kinds of deductions are deducted from your income in:
- Trade or business
- Exercise of profession
(5) If the tax due that you choose is 8% = no deduction will be allowed.
—————————————————————————————————

Review Lecture
OPTIONAL STANDARD DEDUCTIONS (OSD)
- kukuhanin mo muna yung gross receipts/gross sales minus costs of sales (puhunan)
equals gross income —> GROSS RECEIPTS/GROSS SALES - COSTS OF SALES
= GROSS INCOME
- Then kunin mo yung 40% ng gross income = Eto yung OSD mo. —> GROSS
INCOME x 40% = OSD
- So technically, ang taxable net income mo ay 60%

- Then the 60% taxable net income multiply by with the rates
Kung inavail mo yung 40% na OSD = then 60% of your income is subjected to tax. No
receipts needed dito if avail mo ito.
Meron tayong 12 months (regardless whether calendar year or fiscal year) para
icompute si gross income and deductions. In other words, laging ang revenue side mo
at tsaka expense side ay within the 12 months only. Hindi pwedeng i-charge yung
before and after na hindi pasok dun sa 12 months.

Review Lecture
ITEMIZED DEDUCTIONS:
- only applies to taxpayers who are paying the net income tax rate.
- Gross sales/gross receipts minus costs of sales equals gross income
- Apply less authorized (itemized) deductions under Sec 34, Tax Code
- Naturally, authorized deductions are treated as items of exemption. Effect: The more
authorized deductions that you have, the lesser the amount of tax due is paid, since
your taxable income is reduced, depending on the amount of your authorized
expenditures.
- To be allowed, connected sa trade or business. Except in the case of capital

expenditures, expenses incurred for the purchase of assets used in trade or
business. In which case, instead of business expense, you can claim depreciation
expense as a form of deduction.
- Requirements of itemized deductions (must be listed and documented + show proof

through official receipt):
(1) Necessary in trade or business of the taxpayer
(2) Reasonable in amount (depende sa laki ng business mo)
(3) Actually paid or incurred (paid = cash basis method // incurred = accrual basis
method)
- gross income minus itemized deduction equals taxable net income

- Taxable net income multiply with the net income tax rates (graduated rates -20%
onwards)
- Less creditable withholding tax, if any.

- Who are not entitled to any form of deductions? Non-resident alien not engaged in
trade or business and a non-resident foreign corporations.
- Regardless of the type of the taxpayer, if his/her/its income is subjected to FWT,

allowable deductions will not be applied to the income of that taxpayer as well.

Review Lecture
Take note: Bakit noon merong personal exemptions or additional exemptions? Ngayon
wala na yun, tinanggal na sya. Ang pinalit sa kanya bale dun sa table ng 20-35%,
makikita nyo na if your net income does not exceed P250k, the same shall be exempted
from tax. Yun yung kapalit nun. Kasi dati, kahit P1 lang yung taxable net income mo,
may tax, walang exempt. Ngayon, yung first P250k mo, wala syang tax. Ang tinatax na
lang ng batas ay yung after nung first P250k mo. That’s why sa TRAIN Law, hindi ka na
lugi nung tinanggal yung ibang deductions/exemptions kasi ang kapalit nun eh yung
P250k.
A. Business Expenses
Example #1: Si X ay employer (may be a individual or a corporation. Y is an employee

(may be a individual or a corporation).
ITEM OF DEDUCTION EFFECT EFFECT
X (either SEI/Corporation/MIE) Y (empleyado, CIE)
Benta sa tapsilogan Sweldo from X’s Tapsilogan
Sweldo Nagbigay: Since this is an expense Tumanggap; this is income on

on the part of X, he may claim this Y’s part.
as deduction in the nature of

business expenses from his If Y is:
tapsilogan business the sweldo

paid to Y. (a) Managerial = taxable for NIT
(b) Rank & File = taxable for NIT
(c) Minimum Wage Earner = not

taxable
Overtime pay, holiday pay, Nagbigay: Since this is an expense Tumanggap; this is income on
hazard pay, night shift on the part of X, he may claim this Y’s part.
differential as deduction in the nature of

reasonable allowances for salaries If Y is:
and wages from his tapsilogan

business paid to Y. (a) Managerial = taxable for NIT
(b) Rank & File = taxable for NIT
(c) Minimum Wage Earner = not

taxable

Review Lecture
De Minimis Benefit Nagbigay: Since this is an expense Tumanggap; this is income on
on the part of X, he may claim this Y’s part.
as deduction in the nature of

reasonable allowances for salaries Regardless of the type of
and wages from his tapsilogan employee, all de minimis
business paid to Y. benefits received by the
employee within the limits
provided by the law shall be
exempted.
The excess shall form part of the

other benefits which are subject
to the P90,000 exemption.
If it shall not exceed the 90k

ceiling = still exempted
If it shall exceed the 90k ceiling,

it may be treated = as fringe
benefit if supervisor/managerial
employee; or
= as forming part of
compensation subject to NIT
Utilities (kuryente, tubig, Since this is an expense on the part Tumanggap; this is income on
telepono and Internet of X, he may claim this as Y’s part.
connection) deduction in the nature of

reasonable allowances for utilities This cannot be deducted from
from his tapsilogan business Y’s sweldo because as a
provided that he can prove that compensation income earner is
these utilities are:
not entitled to any kind of
(1) Necessary in trade or business deduction.
(2) Reasonable in amount
(3) Actually paid or incurred

Rent X can claim the rental payments on Tumanggap; this is income on
the property used for his tapsilogan Y’s part.
business, he may claim this as

deduction in the nature of This cannot be deducted from
reasonable allowances for business Y’s sweldo because as a
expenses. compensation income earner is
not entitled to any kind of
deduction.

Review Lecture
Marketing expenses/ Incurred for the purpose of:
Gagamitin sa bahay = being a
expenditures/collaterals compensation income earner, he
(a) maintaining the sales (in the nature had no deductions.
of good will) = not allowed as business
expenses deductions since they are in
the nature of capital expenditures
[example: signage]
(b) increasing the sales = allowed as

business expenses deductions
[example: leaflets]
Bribe money/ kickbacks/ These are not allowed as deductible Gagamitin sa bahay = being a
expenses which are business expenses, whether the compensation income earner, he
contrary to law, public business is legal or illegal.
had no deductions.
morals, public policy,
customs and traditions If business is legal tapos nahuli si Y,
and nagbigay ng bribe money si X para
pakawalan si Y = the bribe money is an
illegal expense and therefore, it is not
allowed as a deductible business
expense.
If business is illegal = the

compensation given by X to Y is a
legitimate expense, which is allowed as
a deduction from the income in his
illegal business

Review Lecture
B. Depreciation


Review Lecture
Purchase of real property Will be used in your trade or business Gagamitin sa bahay = being a
or tangible personal (with respect to rentals, provided that compensation income earner, he
property
the lessee does not acquire any had no deductions.
interest other than as a mere
Example: gas range, possessor)
aircon, kawali or baso

Ang bawal sa batas ay pag bumili ka
ng asset na gagamitin mo sa trade or
business mo tapos idededuct mo one
time, bawal yun. Kaya in lieu thereof,
what you can claim is the depreciation
expense while you are using the asset,
you call these types of expenses as
capital expenditures.
Take note: you do not use capital

expense to purchase a capital asset. It
is always you use capital expenditures
to purchase an ordinary asset (which is
used in your trade or business).
Cannot be claimed as deductible

business expense, but in lieu thereof, it
can be claimed as depreciation of the
asset. So technically, nabawi mo din.
A. On real property:
(1) If straight lease = allowed as

deduction.
(2) If under a rent to own agreement,

lessee acquires interest over the
property (in the nature of a capital
expenditure) = cannot be allowed
as a deductible
-> allowed depreciation: 15 to 25 years
B. On tangible personal properties:

these are not deductible expenses,
because in lieu thereof, you can claim
depreciation.
-> allowed depreciation: 5 years
Two types of depreciation:
(1) straight line method
(2) diminishing method = allocate the

value of the asset in the specific
number of years

Review Lecture
C. Interest Expenses


Review Lecture
Interest on loans
Example: Si Mr X (debtor) ay may Example: Si Y (debtor) ay may
utang na P500k kay Mr C (creditor). utang na P500k kay Mr C
Interest expense = Nagbayad si Mr X ng interest on loans (creditor). Nagbayad si Y ng
claimed by the debtor, na P100k.
interest on loans na P100k.
provided he incurred it in
the course of his trade/ Dahil nagbayad si Mr X ng interest Dahil nagbayad si Y (interest
business
income = ang tanong kay Mr C ay expense yun on her part) = ang
taxability since kumita sya tung tanong kay Mr C ay taxability
Bad debts = claimed by nabayad si Mr X; while kay Mr X ay since kumita sya nung nabayad
the creditor
deductibility.
si Y; while si Y cannot claim
deductibility.
33% under Sec 34 = Tax X can claim this deductibility on the

Arbitrage Rule: in the case loan with the proceeds used in his Y cannot claim this deductibility
of bad debt, it is claimed tapsilogan business as interest since she is a compensation
as deduction and expenses.
income earner.
subsequently recovered,
there is a need to declare Applying Tax Arbitrage Rule: X cannot
the actual value at the deduct P100k in full kung sya ay may If hindi bayad si Y, walang effect
time of the recovery (if bank deposit na may interest income sa kanya. Pero kay Mr C meron
bad debt or cash)
tapos kumita, yun ay subjected to 20% kasi nawalan sya ng income. He
final withholding tax, edi passive incurred bad debt in connection
income yun. In real life, this P100k na with his trade or business of
ibinayad kay Mr C shall be further lending, and determined to be
reduced ng 33% ng interest income on actually worthless. Then C can
bank deposits. Kaya hindi pwedeng i- still claim bad debts kahit
deduct ni Mr X yung P100k na buo.
ginamit or hindi yung proceeds
sa trade/business.
If hindi bayad si Mr X, walang income

si Mr C and walang expense si Mr D. Edi nagclaim na ng bad debt si
Ang tax consequence ay bad debt, Mr C. Two years later, etong si Y
which can be claimed by Mr C.
binayaran si Mr C ng P600k
(principal amount of P500k +
Edi nagclaim na ng bad debt si Mr C. interest of P100k) = its effect on
Two years later, etong si Mr X the subsequent recovery of bad
binayaran si Mr C ng P600k (principal debt is considered as under the
amount of P500k + interest of P100k) = tax benefit rule shall form part of
its effect on the subsequent recovery the gross income of Mr C in the
of bad debt is considered as under the year of recovery.
tax benefit rule shall form part of the
gross income of Mr C in the year of
recovery.

Review Lecture
D. Taxes

Real Property Tax

Si X nagbayad ng RPT (magkaiba pa Si Y nagbayad ng RPT (yung sa
yung sa lupa + building) para dun sa lupa amounting to P2k) para dun
33% under Sec 34 = Tax tapsilugan business nya amounting to sa bahay na tinitirhan nya
Arbitrage Rule: in the case P4k = can be claimed by X as amounting to P2k = cannot be
of taxes, it is claimed as deduction in the nature of taxes claimed by Y as deduction since
deduction and incurred in connection with his trade or Y is a compensation income
subsequently refunded, business kasi business expense nya earner, deductions are not
there is a need to declare yan.
allowed.
the actual value at the
time of the recovery (if Edi nagclaim na ng deduction si X. Two
bad debt or cash) years later, nirefund sa kanya yung
P1,500 kasi sobra daw yung nasingil
na RPT for the tapsilugan land and
building nya = apply the tax benefit
rule. Excess or refund shall form part of
the gross income of X in the year when
the refund was made.

Review Lecture
E. Casualty and Loss arising from theft, robbery, embezzlement, fire, storm, shipwreck
and other natural calamity, provided
Benta sa tapsilogan Sweldo from X’s

Tapsilogan
Casualty and Loss Si X bumili ng gas range worth P100k para sa Si Y nagbayad ng RPT
arising from theft, tapsilugan business nya nung 2015
(yung sa lupa
amounting to P2k) para
robbery,
Pwede na ba sya magclaim ng deduction in the dun sa bahay na
embezzlement, fire, nature of business expense para dun sa binili tinitirhan nya
storm, shipwreck and nya na gas range ng 2015? = No, that’s a capital amounting to P2k =
other natural calamity, expenditure.
cannot be claimed by Y
provided that the loss as deduction since Y is
is not compensated Habang ginagamit, nagdedepreciate yung gas a compensation
range. So ilang taon ang depreciaton ng tangible income earner,
for by insurance
personal property? = 5 years. So the deductions are not
depreciation expense every year is P100k allowed.
33% under Sec 34 = Tax
divided by 5 equals P20,000 per year.
Arbitrage Rule: in the case

of casualty loss, it is
claimed as deduction and
subsequently recovered,
there is a need to declare
the fair market value at
the time of the recovery (if
asset).

Review Lecture
Book value per year:
So kahit anong
2016 = P80k
manakaw kay Mr Y,
2017 = P60k
hindi nya pwedeng
2018 = P40k
ideduct, kasi hindi
2019 = P20k
naman yun isinasama
2020 = P0
sa pagkocompute ng
kamyang buwis. Wala
Sa loob ng 5 years, dun mo ibabawas yung syang lugi doon kasi
P20k per year. So bale dun sa 2016 magstart na hindi sya relevant sa
magbabawas ka ng P20k hanggang sa nabawi tax purpose nya bilang
mo din yung P100k.
isang compensation
income earner.
Let’s say nung 2018, etong si Mr M ay ninakaw
yung stove sa tapsilugan ni X. So it’s a casualty
loss because the loss arises from trade or
business and also it arises from robbery nung
2018. Therefore, si X nung 2018, who was not
compensated by insurance for the loss of the
gas range can claim the book value of the gas
range in 2018 of P40k.
So ano ng mangyayari dun sa depreciation cost

sa susunod na mga taon (2019 and 2020)? =
wala na yan, you can no longer claim it kasi
nanakaw na nga sayo eh, hindi mo na yan
nagagamit. Because you can only claim
depreciation when you’re still using the asset
tska on the year it was lost.
Bale ang makeclaim mo lang na depreciation

cost is from 2016-2018. So that’s P60k then add
mo yung P40k na makukuha mo na casualty
loss nung nawalang gas range on 2018. Overall
total is P100k pa din naman.
Edi nagclaim na ng deduction si X. Nung 2021,

sinauli na ni Mr M yang gas range kay X, kaso
isang burner na lang ang gumagana, bale yung
fair market value nya ay bumaba na ng P3k =
apply the tax benefit rule. The asset subjected to
casualty loss which was returned shall form part
of the gross income of X in the year when it was
recovered

Review Lecture
F. Charitable and Other Contributions
Nagbigay ng P300k si X sa Home For the Aged, Nagbigay ng P300k si

church, non-stock non profit educational Y sa Home For the
institution and CHED. Can X claim P300k Aged, church, non-
deduction from his tapsilogan revenues?
stock non profit
educational institution
YES, either up to 5% or 10% sa taxable income and CHED. Can Y
ni X before nya ginawa yung donation sa claim this P300k as
charitable institutions, non stock non profit deduction?
educational institutions: So 10% if si X ay

individual taxpayer (CIE, SEP/SEI, MIE) and 5% NO, kasi 0 deductions
if si X ay sang corporation.
for Y dahil
compensation income
Bale yung taxable income ni X prior to the earner sya. Walang tax
donation = all of the previous allowable benefit sa kanya, the
deductions, magkicreate ka ng taxable income only benefit she has ay
na temporary at doon mo iaapply ang 5% or sya ay mabait na tao.
10%. So kung among mas mababa dun sa 5%
or 10% ng taxable income and dun sa donation,
yun ang idededuct mo.
Pag sa donation sa government, the 300k can

be:
(a) deductible in full if gamitin sya sa declared

priority project ng govt.
(b) If hindi priority project, 5% or 10% will apply.

Review Lecture
G. Pensions
These are the contributions to the private Magcontribute si Y sa

retirement plan of X’s employees. private retirement plan
Nagkocontribute si X sa retirement plan ng mga =
employee’s nya. So authorized deductible

expense yun sa part ni X. 0 deductions for Y
dahil compensation
income earner sya
H. Insurance
Kinuhaan ni X lahat ng empleyado nya ng life Kumuha si Y ng life

insurance = hindi nya pwedeng iclaim yung insurance plan,
premium kasi it’s not a regular business expense insuring his own life
and paying the
premium = 0
deductions for Y dahil
compensation income
earner sya

Review Lecture
I. Research and Development
Nagpa-feasibility si X para sa new variant Nagpa-feasibility si Y

tapsilogan nya, if papatok ba yung tapsilog + kung among
pansit. So nagbayad ng P5k professional fee si magandang business.
X = he can claim the deduction of P5k kasi So nagbayad ng P5k
business expense yun. professional fee si Y =
he cannot claim the
deduction of P5k kasi
wala syang trade or
business.
Pwede nya yun ideduct

dun sa business
income nya pag
natuloy, tawag dun is
mobilization expenses,
since you’re starting up
business.
—————————————————————————————————

Review Lecture
VALUE ADDED TAX
- concept: this is a form of an indirect tax, which is passed on and on. It adds up to
your burden and when it is passed on, it forms part of your costs and goods, or
becomes part of your expenses.
- transactions covered: sale of goods in connection with trade or business; sales of

service in connection with trade or business; importation of goods
- Lahat ng transactions sa mundo ay bentahan.

- Note: in importation of goods -> one, it is an act of importation which is subject to
VAT, so basta nag import ka subject to VAT yan. Pero separate pa kung ibebenta mo
yung inimport mo na goods. So pag inimport mo at ibinenta mo, dalawa ang VAT: isa
dun sa point of importation at pangawala dun sa benta mo because meron kang sale
of goods.
- VAT rate: 12% (pagnagbenta ka ng goods, pagnagbenta ka ng service at nagimport

ka ng goods)
-> if seller ka, ang 12% VAT ay output tax sayo.
-> if buyer ka, ang 12% VAT ay input tax sayo.
- Note: You cannot claim your input or output if you are not BIR-registered.
- As a seller, paano kung di ka nagpatong nung 12%? Ikaw ang magso-shoulder nyan,
because the law will always presume that you have applied the output tax of 12% on
all of your sales. So if you did not passed it on, hindi ka nangolekta, the law will
presume na nangolekta ka, kaya babayaran mo yan, it is as if all of your output taxes
have been paid, therefore galing sa sarili mong bulsa. Ikaw ang magsoshoulder nyan.
Because it is always a requirement that whenever you sell and you are VAT
registered and you are registered with the BIR, you are under obligation to impose
the VAT of 12%. EXCEPT if your gross sales or gross receipts do not exceed P3
million, syempre hindi ka pupwede kasi below P3M ang iyong sales eh. That’s an
exempt transaction.
Let’s say nagbenta si S ng worth P100 na pentel pen. Binenta ni S kay B yung pentel
pen for P112. So kay seller, yung P12 ay output tax. Tapos yung P12 para kay buyer is
input tax. Either iimprovise ni B yung pentel pen or as is nya ibebenta. Bale ang
puhunan ni B ay P112 (kasi sa ganito nyang halaga nabili yung pentel pen eh) plus
yung mga gastos nya or add-ons na may total na P130. So binenta ni B kay Red yung
pentel pen ng P150, para may tubo syang P20. So naging seller na si buyer na may

Review Lecture
input na P12 ibinenta nya kay Mr Red (na buyer na ngayon) yung pentel pen. Bilang
buyer na si Mr Red, magbabayad sya ng gross selling price plus yung 12% ng gross
selling price which is (P150 +18 = P168). So yung P18, output tax kay B, while input tax
kay Mr Red.
Sa kanilang tatlo, sino ang may input and output taxes? = B.
How to compute VAT payable or excess output tax —> OUTPUT TAX minus INPUT TAX
= P18 - P12 = P6 yung babayaran mo sa BIR
Paano if mas malaki yung input tax mo kesa output tax mo? Pwede mangyari yan, ibig
sabihin mas marami kang nagastos or binili, kesa binenta. Let’s say ang output tax mo
ay P10 ang input mo ay P14 so meron kang P4 na sobra, at ang tawag dyan ay excess
input VAT. Edi anong mangyayari pag sobra yung binayaran mong buwis? Edi credit the
excess input VAT for the succeeding quarters.
*example: X and Y are both income taxpayers.
TAXPAYER CONCERNED
REVENUE SIDE Tapsilogan business

Sweldo (P360,000 a year)
Seller si empleyado
Buyer si employer
= wala yang VAT kasi it is exempted

from VAT; 0 output tax
= subject to sa NIT for income tax
Source of revenue Buy and sell tapsilog (nature of Nagbebenta ng serbisyo pursuant to an
expenditures) employer-employee relationship
Tax Due
EXPENSE SIDE Tapislogan business

Everyday expenses
Source of expenses Tapislogan business

Nagbabayad ng rentals ng bahay,
namimili ng utilities, bumibili sya ng
pagkain kasi plain consumer

Review Lecture
VAT EXAMPLE: Gross receipts/total na benta ni (a) Utilities = P10k a year (input VAT =
X ay P10M.
P1,200)
(b) Pagkain = P20k a year (input tax =

Cost of sales (raw materials) = P2,400)
P6M
(c) Rentals = P25k a year (input tax =
P3k)
Gross Income = P4M
Total expenses = P55k
Authorized deductions = P1M:
Utilities = P500k
Yung P55k ba pwede mong ideduct sa
Rental ng tapsilogan = P300k
P360k na income mo? = Sabi ng batas
Gasul expense = P200k
hindi pwede kasi wala kang
deductions. Kaya ang pagbabasehan
Taxable net income = P3M
lang sayo as a compensation income
earner ay for income tax purposes ay
Income tax: P3M x NIT rate is yung P360k or sweldo mo, because
equal to Tax Due
you are never allowed to claim any
deduction.
Pagdating sa VAT, wala kang ibinenta

kasi 0 output ka, pero may input ka na
P6,600 (yan yung binayaran mo na
dagdag dun sa pinamili mo, diba
nagagalit tayo, puro na lang VAT). Sa
halip na P55k lang ang ginastos mo,
may dagdag pang P6,600.

Review Lecture
VAT EXPLANATION: APPLICATION of 12% VAT:
So sa VAT purposes ni compensation
income earner who is a plain consumer,
(a) Dun sa benta na P10M = pwede ba nyang sabihin: “Uy
P1,200,000 (output tax)
gobyerno, sobra ang binayad ko
(b) Cost of sales = P720k (input P6,600 babawiin ko yan ah?” Ah, hindi
tax kasi expense)
uubra. Bakit? Because the only time
(c) Utilities = P60k (input tax that you credit the input against the
kasi expense)
output in this manner is when you are
(d) Rental = P36k (input tax kasi VAT registered. Since you are not
expense)
engaged in any trade or business, you
(e) Gasul = P224k (input tax can’t be VAT registered. Therefore, as a
kasi expense)
plain consumer, every input tax/VAT
that you paid is just an add-on to your
Output tax: P1,200,000
expenses. It does not have any tax
Input tax: P840,000
effect.
Output tax minus Input tax =

P1,200,000 - P840,000 =
P360,000.
So ang babayaran ni X sa BIR ay

yung net income tax nya plus
yung excess VAT payable of
P360k. Same transactions yan
ng pagbebenta ng tapsilog and
pamimili para sa tapsilogan
business.
Summary: VAT will always be a component or consequence of income tax.
Seller: You add P12% to the gross selling price/gross receipts. If you are in the trade or
business, sa bawat benta mo, magdadagdag ng 12% para bayaran ng buyer. Whatever
purchase you made wherein you pay the input VAT, will be credited against the output
VAT on all of your sales.
But if you’re just a plain consumer (or a compensation income earner), it forms part of
your expense. The input VAT you cannot credit it, it becomes part of your costs of
goods, it has no relevance on your tax due. Ang epekto lang ay gumastos ka ng mas
madami kasi may add on na 12%.
Pag VAT payable ka, malamang sa income tax payable ka din. Pag ikaw ay mas
maraming input VAT pesa output VAT, ang itsura mo sa income tax system ay operating
at a loss, therefore 0 tax is equivalent to excess input VAT.

Review Lecture
—————————————————————————————————
ZERO-RATED VAT
- The transaction is not subject to VAT at all stages

- The input VAT is allowed to be credited against output VAT
- VATable yun, except that the rate is 0%.
- Kinds: (a) zero rated transaction on sales of good; and (b) zero rated transaction on
sales of services; (c) zero rated transactions on export of goods
- There is a unquantifiable economic benefit to the country and government. Therefore,

because of that benefit, the law states that bibigyan kita ng benefit by giving you the
rate of 0%.
- The perfect example na may benefit ang 0% ay export sales kaya binibigyan ng zero
rate ang taxpayer: pag import, VATable at 12%. Pag export sales, VATable at 0%. Ang
importation kasi pag nag import ka ng goods, may negative effect yan sa ekonomiya
ng bansa. Dalawa: (1) Pagnagimport ka, ang babayad mo sa seller ay foreign
currency na manggagaling sa Pilipinas, therefore, it has the effect of reducing the
foreign currency reserves of the country; (2) the imported foreign goods compete with
the locally manufactured products. Pero ang tandaan nyo, hindi naman pwedeng
ipagbawal yung importation because we are an open trade country, we are a
signatory to open trade market. Pwede nating limitahan. How do we limit? By
imposing the 12% VAT. To countervail the two negative effects on the economy that I
mentioned earlier, pagdating naman sa export, sabi natin pagpalabas naman tayo
ang nagbebenta ang bayad sa atin ay foreign currency reserves. So ang positive
effect ng export ay: (1) dumadami ang foreign currency reserves natin kasi
binabayaran tayo ng dolyares; (2) we are promoting locally made products outside of
the country. These two are the positive effects of export. Dahl may positive effect ang
export sales, sari ng batas: “Binibigyan mo ko ng benepisyo. Bibigyan din kita ng
benepisyo, ise-zero kita.”
- Lahat ng input tax na 12% na binayaran mo ng exporters in producing the goods for
sale, by way of export, lahat ng input vat mo doon, ikecredit natin.
- Two benefits: (1) on the rate = instead of 12, naging 0 sya; (2) bago ka
makapagbenta by export, maggagawa ka ng goods. You buy raw materials. Edi
meron kang input tax kasi namili ka. Sabi nung batas, “uy pwede mo syang [input tax]
I-credit against your output tax.

Review Lecture
- Whe you have excess input tax, you may file a claim for refund of the said excess in
input VAT, ibabalik ng gobyerno yan sainyo because you are allowed to credit if
meron kang pagke-creditan, pero pag wala, irerefund mo ng buo yan.

Review Lecture
—————————————————————————————————
VAT EXEMPT TRANSACTIONS
- The transaction is not subject to VAT only at a particular stage

- The input VAT is not allowed to be credited against output VAT
- Gross sales/gross receipts of the taxpayer does not reach or exceed P3M in a year.
Babawian ka ng gobyerno sa percentage tax (2% of gross sales/gross receipts).
- Pertinent provision: Section 109, Tax Code

SEC. 109. Exempt Transactions. —
(1) Subject to the provisions of the Subsection (2) here of, the following transactions
shall be exempt from the value-added tax:
• (A) Sale or importation of agricultural and marine food products in their original
state, livestock and poultry of a kind generally used as, or yielding or producing
foods for human consumption; and breeding stock and genetic materials therefor.
Products classified under this paragraph shall be considered in their original state
even if they have undergone the simple processes of preparation or preservation
for the market, such as freezing, drying, salting, broiling, roasting, smoking or
stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses,
ordinary salt, and copra shall be considered in their original state;
*example #1: May mangingisda na nanghuli ng bangus tapos ibinenta sayo
VATable? Hindi. Kasi in the original state yung bangus nung binenta eh.
*example #2: Ikaw na bumili sa mangigisda at ikaw ay magtitinda ka sa palengke.

Binenta mo yung bangus as it is.
VATable? Hindi. Kasi in the original state yung bangus nung binenta eh.
*example #3: May natirang bangus. So yung iba ginawa mong relyeno cut or style na
hilaw. Yung isa ginawa mong tinapa. At yung iba ginawa mong daing. Nilagyan ng
preservatives, suka, patis, toyo, bawang. Tapos nilagay mo sa plastic na ready to cook.
So pag bumili si buyer ng 1 kilo na fresh bangus - naka relyeno cut at daing na bangus
cut.
VATable? Hindi. Kasi in the original state pa din yung bangus nung binenta eh.

Review Lecture
*example #4: Si kuya na bumili ng bangus na naka relyeno cut at daing na bangus cut
eh may business na kainan. May nag order sa kanya ng daingsilog.
VATable? Yes, yung bangus na naging daing cut na naging daingsilog is already
VATable kasi hindi na sya on its original state.
• (B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish,

prawn, livestock and poultry feeds, including ingredients, whether locally
produced or imported, used in the manufacture of finished feeds (except
specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and
other animals generally considered as pets);
• (C) Importation of personal and household effects belonging to the residents of

the Philippines returning from abroad and nonresident citizens coming to resettle
in the Philippines: Provided, That such goods are exempt from customs duties
under the Tariff and Customs Code of the Philippines;
• (D) Importation of professional instruments and implements, tools of trade,

occupation or employment,64 wearing apparel, domestic animals, and personal
and household effects belonging to persons coming to settle in the Philippines or
Filipinos or their families and descendants who are now residents or citizens of
other countries, such parties hereinafter referred to as overseas Filipinos, in
quantities and of the class suitable to the profession, rank or position of the
persons importing said items,65 for their own use and not for barter or sale,
accompanying such persons, or arriving within a reasonable time:66 Provided,
That the Bureau of Customs may, upon the production of satisfactory evidence
that such persons are actually coming to settle
in the Philippines and that the goods are brought from their former place of
abode, exempt such goods from payment of duties and taxes:67 Provided,
further, That vehicles, vessels, aircrafts, machineries and other similar goods for
use in manufacture,68 shall not fall within this classification and shall therefore
be subject to duties, taxes and other charges;
• (E) Services subject to percentage tax under Title V;
• (F) Services by agricultural contract growers and milling for others of palay into
rice, corn into grits and sugar cane into raw sugar;

Review Lecture
• (G) Medical, dental, hospital and veterinary services except those rendered by
professionals;
• (H) Educational services rendered by private educational institutions, duly

accredited by the Department of Education (DepEd), the Commission on Higher
Education (CHED), the Technical Education and Skills Development Authority
(TESDA) and those rendered by government educational institutions;
• (I) Services rendered by individuals pursuant to an employer-employee

relationship;
• (J) Services rendered by regional or area headquarters established in the

Philippines by multinational corporations which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region and do not earn or derive income from the
Philippines;
• (K) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential
Decree No. 529;
• (L) Sales by agricultural cooperatives duly registered with the Cooperative

Development Authority to their members as well as sale of their produce, whether
in its original state or processed form, to non- members; their importation of
direct farm inputs, machineries and equipment, including spare parts thereof, to
be used directly and exclusively in the production and/or processing of their
produce;
• (M) Gross receipts from lending activities by credit or multi-purpose cooperatives

duly registered with the Cooperative Development Authority.
• (N) Sales by non-agricultural, non-electric and non-credit cooperatives duly

registered with the Cooperative Development Authority: Provided, That the share
capital contribution of each member does not exceed Fifteen thousand pesos
(P15,000) and regardless of the aggregate capital and net surplus ratably
distributed among the members:
• (O) Export sales by persons who are not VAT-registered;

Review Lecture
• (P) Sale of real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business, or real property utilized for low-
cost and socialized housing as defined by Republic Act No. 7279, otherwise
known as the Urban Development and Housing Act of 1992, and other related
laws, residential lot valued at One million five hundred thousand pesos
(P1,500,000) and below, house and lot, and other residential dwellings valued at
Two million five hundred thousand pesos (P2,500,000) and below: Provided,
That beginning January 1, 2021, the VAT exemption shall only apply to sale of
real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business, sale of real property utilized for socialized
housing as defined by Republic Act No. 7279, sale of house and lot, and other
residential dwellings with selling price of not more than Two million pesos
(P2,000,000):69 Provided, further, That every three (3) years thereafter, the
amount herein stated shall be adjusted to its present value using the Consumer
Price Index, as published by the Philippine Statistics Authority (PSA);70
• (Q) Lease of a residential unit with a monthly rental not exceeding Fifteen
thousand pesos (P15,000);71
• (R) Sale, importation, printing or publication of books and any newspaper,

magazine, review or bulletin which appears at regular intervals
with fixed prices for subscription and sale and which is not devoted principally to
the publication of paid advertisements;
• (S) Transport of passengers by international carriers;72
• (T) Sale, importation or lease of passenger or cargo vessels and aircraft,

including engine, equipment and spare parts thereof for domestic or international
transport operations;
• (U) Importation of fuel, goods and supplies by persons engaged in international

shipping or air transport operations: Provided, That the fuel, goods and supplies
shall be used for international shipping or air transport operations;73
• (V) Services of bank, non-bank financial intermediaries performing quasi-

banking functions, and other non-bank financial intermediaries; and
• (W) Sale or lease of goods and services to senior citizens and persons with
disability, as provided under Republic Act Nos. 9994 (Expanded Senior Citizens

Review Lecture
Act of 2010) and 10754 (An Act Expanding the Benefits and Privileges of
Persons with Disability), respectively;74
• (X) Transfer of property pursuant to Section 40(C)(2) of the NIRC, as

amended;75
• (Y) Association dues, membership fees, and other assessments and charges
collected by homeowners associations and condominium corporations;76
• (Z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);77
• (AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension beginning January 1, 2019;78 and
• (BB) Sale or lease of goods or properties or the performance of services other

than the transactions mentioned in the preceding paragraphs, the gross annual
sales and/or receipts do not exceed the amount of Three million pesos
(P3,000,000).79
—————————————————————————————————

Review Lecture
DONOR’S TAX
- in the nature of a transfer tax

- Keywords:
• Inter vivos = transfers which take effect during lifetime of both the donor and the
donee, they may either be an individual or a corporation.
• REAL PROPERTY BEING DONATED : If real property was being gifted or donated ->
basis (whichever is higher): (a) fair market value at the time of gift; (b) assessed value
at the time of gift; (c) zonal valuation at the time of gift.
• PERSONAL PROPERTY BEING DONATED : If personal property (whether tangible

or intangible) was being gifted or donated -> basis: fair market value at the time of gift.
• SHARES OF STOCK BEING DONATED : If shares of stock was being gifted or

donated -> computation of valuation of shares of stocks: kukunin mo yung buong
assets ng corporation divided by the number of shares = value of stocks per shares
• Time of reckoning (uses calendar year as in January to December): at the time of the
gift
• Gratuitous = no monetary consideration
• Total amount na libre ka sa donor’s tax = first P250,000
• Rate: 6% (this will apply in excess of P250k)
• Subject matter of donor’s tax: (a) real property; (b) tangible personal property; (c)
intangible personal property
• Computation: get the valuation of the subject matter because that is the basis of the
6% donor’s tax rate.
• Formulas:
Gross Gift or Donation Value (at the time it was given) minus Authorized Deductions =
Taxable Net Gift
Taxable Net Gift in excess of the P250,000 multiply by 6% donor’s tax = Tax Due
- For purposes of income tax: the taxability depends on the source of income
- For purposes of donor’s tax The taxability depends on the location of property
(whether the property is within or without)

Review Lecture
A. For Real Property & Tangible Personal Property
KIND OF WITHIN
WITHOUT
DONATION DONATION MADE
TAXPAYER
MADE TO TO THE EXEMPT
(DONOR) -> All properties located of -> All properties of the THE INSTITUTIONS
the taxpayer in the taxpayer located in the GOVERNM (CHARITABLE
Philippines when donated Foreign country when ENT INSTITUTION,
donated RELIGIOUS
INSTITUTIONS &
NON STOCK NON
PROFIT
EDUCATIONAL
INSTITUTIONS)
RESIDENT SUBJECT TO DONOR’S SUBJECT TO DEDUCTIB GR: DEDUCTIBLE
CITIZEN TAX DONOR’S TAX BOTH LE IN FULL

IN THE PHILIPPINES CONDITION: NOT
AND IN THE FOREIGN MORE THAN 30%
COUNTRY WHERE IT IS USED INA
WAS LOCATED DMINISTRATION
PURPOSES
NON- SUBJECT TO DONOR’S SUBJECT TO DEDUCTIB GR: DEDUCTIBLE
RESIDENT TAX DONOR’S TAX BOTH LE IN FULL

CITIZEN IN THE PHILIPPINES CONDITION: NOT
AND IN THE FOREIGN MORE THAN 30%
COUNTRY WHERE IT IS USED INA
WAS LOCATED DMINISTRATION
PURPOSES
RESIDENT SUBJECT TO DONOR’S SUBJECT TO DEDUCTIB GR: DEDUCTIBLE
ALIEN TAX:
DONOR’S TAX:
LE IN FULL
(a) IN THE (a) IN THE CONDITION: NOT
PHILIPPINES
PHILIPPIN MORE THAN 30%
(b) THE ES
IS USED INA
COUNTRY (b) THE DMINISTRATION
WHERE HE IS COUNTRY PURPOSES
A CITIZEN OF
WHERE
(c) IN THE HE IS A
FOREIGN CITIZEN
COUNTRY OF
WHERE IT (c) IN THE

WAS FOREIGN
LOCATED COUNTRY
WHERE IT
WAS
LOCATED

Review Lecture
NON- SUBJECT TO DONOR’S NOT SUBJECT TO DEDUCTIB GR: DEDUCTIBLE
RESIDENT TAX:
DONOR’S TAX LE IN FULL
ALIEN ETB (a) IN THE CONDITION: NOT
PHILIPPINES
MORE THAN 30%
(b) THE IS USED INA
COUNTRY DMINISTRATION
WHERE HE IS PURPOSES
A CITIZEN OF
(c) IN THE
FOREIGN
COUNTRY
WHERE IT
WAS
LOCATED
NON- SUBJECT TO DONOR’S NOT SUBJECT TO DEDUCTIB GR: DEDUCTIBLE
RESIDENT TAX:
ALIEN NETB (a) IN THE CONDITION: NOT
PHILIPPINES
MORE THAN 30%
(b) THE IS USED INA
COUNTRY DMINISTRATION
WHERE HE IS PURPOSES
A CITIZEN OF
(c) IN THE
FOREIGN
COUNTRY
WHERE IT
WAS
LOCATED
SPECIAL SUBJECT TO DONOR’S NOT SUBJECT TO DEDUCTIB GR: DEDUCTIBLE
NRANETB
TAX:
(Expats (a) IN THE CONDITION: NOT
working for PHILIPPINES
MORE THAN 30%
offshore (b) THE IS USED INA
banking COUNTRY DMINISTRATION
units, WHERE HE IS PURPOSES
petroleum oil A CITIZEN OF
service (c) IN THE

contractors FOREIGN
and COUNTRY
multinational WHERE IT
companies) WAS
LOCATED
B. Intangible Personal Property

Kinds (as provided by Section 104, Tax Code):

Review Lecture
- franchise which must be exercised in the Philippines
- shares, obligations or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws; shares,
obligations or bonds by any foreign corporation eighty-five percent (85%) of the
business of which is located in the Philippines
- shares, obligations or bonds issued by any foreign corporation if such shares,

obligations or bonds have acquired a business situs in the Philippines
- shares or rights in any partnership, business or industry established in the

Philippines, shall be considered as situated in the Philippines
*all are considered as situated in the Philippines
SITUS OF INTANGIBLE PERSONAL PROPERTIES
GR: Location is following the domicile of the owner (mobilia secuntur personam)
XPN: The above mentioned intangible personal properties are all considered as situated
in the Philippines even if they are not.
-> That where the decedent or donor was a nonresident alien at the time of his death or
donation, as the case may be, his real and personal property so transferred but which
are situated outside the Philippines shall not be included as part of his ‘gross estate’ or
‘gross gift’ .
XPN to XPN: Reciprocity rule: When the foreign country laws does not impose donor’s
tax on similar shares of stocks of Filipino citizens who are non-resident aliens therein,
and the shares of stocks are in a domestic corporation in that foreign country, then the
Philippines will not also impose donor’s tax on the properties of the alien in a Philippine
domestic corporation
-> That no tax shall be collected under this Title in respect of intangible personal
property: (a) if the decedent at the time of his death or the donor at the time of the
donation was a citizen and resident of a foreign country which at the time of his death or
donation did not impose a transfer tax of any character, in respect of intangible personal
property of citizens of the Philippines not residing in that foreign country, or (b) if the
laws of the foreign country of which the decedent or donor was a citizen and resident at
the time of his death or donation allows a similar exemption from transfer or death taxes
of every character or description in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country.

Review Lecture
*example: XYZ is a domestic corporation. Si Mr A ay may shares of stocks worth P1M
sa XYZ Corp. Si Mr A ay isang US citizen and nakatira din sya sa US, so isa syang
NRA. The general rule in determining situs for purpose of income taxation, follow the
Domicile of the owner (mobilia secuntur personam). In determining the situs of an
intangible personal property, mobilia secuntur personam applies. Such as when Mr A
donates his shares of stocks from XYZ Corp (a domestic corporation) which is worth
P1M, hindi yan masasubject sa donor’s tax because of the rule on mobilia secuntur
personam. Exception to this is the rule stated in Sec 104 of the Tax Code at nakasulat
dyan na shares of stocks issued by a domestic corporation, ito ay income sourced
within. So pag dinonate ni Mr A yung stocks nya na issued ng domestic corp, subject na
yan sa donor’s tax, ididisregard natin yung mobilia secuntur personam rule, iaapply mo
si Sec 104. Exception to the exception is the reciprocity rule (baliktaran - 69): so dito
hindi natin ita-tax yung P1M kung sa US ay hindi tinatax yung mga Pilipino na may
similar shares of stocks sa domestic corp dun sa US. So hindi tayo magi-impose ng any
tax on P1M. The reciprocity rule is a valid remedy provided by law in order to reduce the
impact of double taxation in the broad sense.
TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION IN DONOR’S

TAX:
*sa lumang code: pag nagbenta ka ng lugi, automatically yung portion ng lugi mo, yun
yung subject to donor’s tax. Kasi para kang namigay ng libre. That’s the old rule.
*example: Five years ago, bumili si Atty Lumbera ng relo na worth P150k. Ngayon ang
fair market value na lang nito is P100k. Nalugi ba sya? Hindi, kasi yung P50k is
katumbas ng usage nya nung watch. So ngayon binenta na nya ng P20k. Tubo ba or
lugi on her part? Lugi sya ng P80k. Dahil binenta ni Atty ng P80k which is lugi on her
part, wala syang kita. Dahil wala syang kita, walang nakuhang income tax ang gobyerno
sa kanya. Nalugi si Atty kasi binenta nya ng P20k yung P100k worth na relo, so
kasalanan nya yung pagkalugi nya. Dahil dyan sabi ng batas: “Hoy Lumbera, namigay
ka ng P80k kay kuya, kaya babawian kita. Bayad kang donor’s tax ha.” Example ng
pagnagbenta ka ng lugi, namimigay ka ng libre.
Section 100, TRAIN LAW: Transfer for Less Than Adequate and Full Consideration. —
Where property, other than real property referred to in Section 24(D), is transferred for
less than an adequate and full consideration in money or money’s worth, then the
amount by which the fair market value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a
gift, and shall be included in computing the amount of gifts made during the calendar
year: Provided, however, That a sale, exchange, or other transfer of property made in
the ordinary course of business (a transaction which is a bona fide, at arm’s length, and

Review Lecture
free from any donative intent), will be considered as made for an adequate and full
consideration in money or money’s worth.
*example: pag ang ibinenta mo is properties mo which is used in the course of your
trade or business ng lugi, wala kang donor’s tax.
May dalawang relo si Atty Lumbera na parehong worth P150k. Yung isa gamit nya for
personal use so capital asset. Tapos yung isa pambenta nya sa tindahan nya ng relo,
which is an ordinary asset. Ano mangyayari pag binenta nya ng lugi yung parehong
relo? Pagbinenta nya ng P20k yung relo na ginagamit nya personally, magbabayad sya
ng donor’s tax. Pero pag yung relo na pambenta nya sa tindahan nya ang binenta nya
ng P20k, hindi nya need magbayad ng donor’s tax kasi binenta nya in the ordinary
couse of her trade or business.
Sa grocery, diba uso yung mga buy 1 take 1? May grocery business si Atty Lumbera.
So kung ang coke ay binili ni Atty Lumbera ng P7.50 at binebenta nya ng P10 under
ordinary circumstances, yung coke na yun ay ordinary asset or ordinary goods sold in
the course of her grocery business. Eh mage-expire na, so kesa ma-zero sales sya,
ibebenta nya ng buy 1 take 1 sa halagang P10. So ang puhunan ni Atty Lumbera ay
P7.50 tapos dati binebenta nya ng P10 ang isa. Pero ngayon binebenta na nya ng
dalawa for P10. So lugi sya, para syang namigay ng P2.50 bawat isa. Sabi sa TRAIN
Law, yung P2.50 na lugi nya as long as the goods sold are forming part of the ordinary
course of trade or business, then, there would be no donor’s tax component.
POLITICAL/CAMPAIGN CONTRIBUTIONS
(x) under the old Corporation Code, bawal nagdo-donate ang korporasyon sa campaign
purposes, that’s an illegal donation.
***Under the Revised Corporation Code: recognized na ngayon ang political/campaign

contributions from domestic corporations. So ngayon, ni-legalize na yung donations
from corporate taxpayers in favor of political parties or political candidates for campaign
purposes. So pagnagdonate, what are the rules:
(a) the gift should be for campaign purposes;
(b) given dapat yung donation within the official campaign period;
(c) subjected to creditable withholding tax of 5%;
(d) the candidate who is either winning or losing should have filed the SOCE.
Consequence if these above mentioned rules are not met: all will be subjected to
donor’s tax, if it exceeds P250k.
-x-x-x-x-x-x-x-x-x-x-x-x-x-x

Review Lecture
Example: Si X ay may mga anak, sila A, B, C and D. Binigyan ni X si A ng P600k nung

Feb 14. Tapos nung May naman, binigyan ni X si B ng P600k. Noong June nagpakasal
si C, so nagbigay din si X kay C ng P600k. At si D ay magbabar exam ng November,
kaya binigyan din ni X si D ng P600k. Lahat ito nangyari ng taong 2020. So every bigay
nya ng regalo may donor’s tax. Pero ang computation nya is cumulative from January to
December.
Sundan ang formula: Gross Gift or Donation Value (at the time it was given) minus
Authorized Deductions = Taxable Net Gift
Taxable Net Gift in excess of the P250,000 multiply by 6% donor’s tax = Tax Due
X’s donation to A:
Yung value ng gift ima-minus mo sya sa P250,000 (if lampas sya ng P250,000)
P600,000 minus P250,000 = P350,000
So if may deductions, minus mo na yun sa P350k, but in this case there is none.
P350,000 multiply with 6% = P21,000
X’s donation to B:
Isasama yung previous donation made kay A then add yung donation kay B:
So bale P600,000 + P600,000 =P1,200,000
P1,200,000 minus P250,000 = P950,000
So if may deductions, minus mo na yun sa P950k but in this case there is none.
P950,000 multiply with 6% = P57,000
Then ileless mo yung tax due nung previous donation
P57,000 minus P21,000 = P36,000
X’s donation to C:

Review Lecture
Isasama yung previous donations made kila A and B then add yung donation kay C:
So bale P600,000 +P600,000 + P600,000 =P1,800,000
P1,800,000 minus P250,000 = P1,550,000
So if may deductions, minus mo na yun sa P1,550,000 but in this case there is none.
P1,550,000 multiply with 6% = P93,000
Then ileless mo yung tax due nung previous donations made (kunin mo muna yung
overall amount nung previous donations then saka mo ideduct)
P93,000 minus P57,000 = P36,000
*TIP: Kung gusto nyong makatipid ng donor’s tax. Kung magdodonate ka ng P500k.
Idonate mo yung P250k ng December 31. Yung isang P250k idonate mo ng January 1.
Yan yung dalawang draw na walang buwis. Dapat hindi ka laagpas ng P250k sa
donations mo sa isang taon para di ka need magbayad ng donor’s tax.
—————————————————————————————————
ESTATE TAX
- mortis causa transfers of property

- No more requirement for filing Notice of Death
- Period of estate tax payment: One year from death
- Estate Tax Rate: 6% (threshold of P250k will not apply)
- Subject matter:
• Real properties -> basis (whichever is higher): (a) fair market value at the time of gift;
(b) assessed value at the time of gift; (c) zonal valuation at the time of gift.

Review Lecture
• Tangible personal properties -> basis: fair market value at the time of gift.
• Intangible personal properties -> basis: fair market value at the time of gift.
• If shares of stock was being gifted or donated -> computation of valuation of shares of
stocks: kukunin mo yung buong assets ng corporation divided by the number of
shares = value of stocks per shares
- Keywords:
• Tao lang ang namamatay
• Consider the valuation of the property at the time of death
• Walang calendar year or fiscal year kasi isang beses lang namamatay ang isang tao,
isang beses lang ito binayaran
• The taxability of the property depends on its location
• Formulas:
Gross Estate minus Allowable Deductions = Taxable Net Estate
Taxable Net Estate multiply with 6% = Estate Tax Due
A. For Real Property and Tangible Personal Property

Review Lecture
KIND OF WITHIN
WITHOUT
GROSS ESTATE: DONATION MADE
TAXPAYER
DECEDENT’S INTEREST, TO THE EXEMPT
(DECEDENT) -> All properties -> All properties TRANSFERRED FOR INSTITUTIONS
located of the of the taxpayer INSUFFICIENT (CHARITABLE
taxpayer in the located in the CONSIDERATION, INSTITUTION,
Philippines when Foreign country TRANSFER IN RELIGIOUS
decedent died when decedent CONTEMPLATION OF INSTITUTIONS &
died DEATH, REVOCABLE NON STOCK NON
TRANSFER, PROPERTY PROFIT
PASSING UNDER EDUCATIONAL
GENERAL POWER OF INSTITUTIONS)
APPOINTMENT,
PROCEEDS OF LIFE
INSURANCE POLICY AND
PRIOR INTEREST
Question: Meron ka bang

interest, right, ownership or
control kahit gaano sya
kaliit over the property? If
the answer is yes, the rule
of thumb is we include the
property in the computation
of the decedent’s gross
estate
RESIDENT SUBJECT TO SUBJECT TO DECEDENT’S INTEREST, GR: DEDUCTIBLE
CITIZEN ESTATE TAX ESTATE TAX TRANSFERRED FOR

BOTH IN THE INSUFFICIENT CONDITION: NOT
PHILIPPINES CONSIDERATION, MORE THAN 30%
AND IN THE TRANSFER IN IS USED INA
FOREIGN CONTEMPLATION OF DMINISTRATION
COUNTRY DEATH, REVOCABLE PURPOSES
WHERE IT IS TRANSFER, PROPERTY
LOCATED PASSING UNDER
GENERAL POWER OF
APPOINTMENT,
PROCEEDS OF LIFE
PRIOR INTEREST

Review Lecture
NON- SUBJECT TO SUBJECT TO DECEDENT’S INTEREST, GR: DEDUCTIBLE
RESIDENT ESTATE TAX ESTATE TAX TRANSFERRED FOR

CITIZEN BOTH IN THE INSUFFICIENT CONDITION: NOT
PHILIPPINES CONSIDERATION, MORE THAN 30%
AND IN THE TRANSFER IN IS USED INA
FOREIGN CONTEMPLATION OF DMINISTRATION
COUNTRY DEATH, REVOCABLE PURPOSES
WHERE IT IS TRANSFER, PROPERTY
LOCATED PASSING UNDER
GENERAL POWER OF
APPOINTMENT,
PROCEEDS OF LIFE
PRIOR INTEREST
RESIDENT SUBJECT TO SUBJECT TO DECEDENT’S INTEREST, GR: DEDUCTIBLE
ALIEN ESTATE TAX ESTATE TAX TRANSFERRED FOR

BOTH IN THE BOTH IN THE INSUFFICIENT CONDITION: NOT
PHILIPPINES PHILIPPINES CONSIDERATION, MORE THAN 30%
AND IN THE AND IN THE TRANSFER IN IS USED INA
FOREIGN FOREIGN CONTEMPLATION OF DMINISTRATION
COUNTRY COUNTRY DEATH, REVOCABLE PURPOSES
WHERE IT IS WHERE IT IS TRANSFER, PROPERTY
LOCATED LOCATED PASSING UNDER
GENERAL POWER OF
APPOINTMENT,
PROCEEDS OF LIFE
PRIOR INTEREST
NON- SUBJECT TO NOT SUBJECT DECEDENT’S INTEREST, GR: DEDUCTIBLE
RESIDENT ESTATE TAX; IT TO ESTATE TAX TRANSFERRED FOR

ALIEN ETB WILL BE INSUFFICIENT CONDITION: NOT
SUBJECTED TO CONSIDERATION, MORE THAN 30%
DONOR’S TAX TRANSFER IN IS USED INA
IN THE CONTEMPLATION OF DMINISTRATION
FOREIGN DEATH, REVOCABLE PURPOSES
COUNTRY TRANSFER, PROPERTY
WHERE THE PASSING UNDER
DECEDENT IS A GENERAL POWER OF
CITIZEN/ APPOINTMENT,
RESIDENT OF PROCEEDS OF LIFE
PRIOR INTEREST

Review Lecture
NON- SUBJECT TO NOT SUBJECT DECEDENT’S INTEREST, GR: DEDUCTIBLE
RESIDENT ESTATE TAX; IT TO ESTATE TAX TRANSFERRED FOR

ALIEN NETB WILL BE INSUFFICIENT CONDITION: NOT
SUBJECTED TO CONSIDERATION, MORE THAN 30%
DONOR’S TAX TRANSFER IN IS USED INA
IN THE CONTEMPLATION OF DMINISTRATION
FOREIGN DEATH, REVOCABLE PURPOSES
COUNTRY TRANSFER, PROPERTY
WHERE THE PASSING UNDER
DECEDENT IS A GENERAL POWER OF
CITIZEN/ APPOINTMENT,
RESIDENT OF PROCEEDS OF LIFE
PRIOR INTEREST
SPECIAL SUBJECT TO NOT SUBJECT DECEDENT’S INTEREST, GR: DEDUCTIBLE
NRANETB
ESTATE TAX; IT TO ESTATE TAX TRANSFERRED FOR
(Expats WILL BE INSUFFICIENT CONDITION: NOT
working for SUBJECTED TO CONSIDERATION, MORE THAN 30%
offshore DONOR’S TAX TRANSFER IN IS USED INA
banking IN THE CONTEMPLATION OF DMINISTRATION
units, FOREIGN DEATH, REVOCABLE PURPOSES
petroleum oil COUNTRY TRANSFER, PROPERTY
service WHERE THE PASSING UNDER
contractors DECEDENT IS A GENERAL POWER OF
and CITIZEN/ APPOINTMENT,
multinational RESIDENT OF PROCEEDS OF LIFE
companies) INSURANCE POLICY AND
PRIOR INTEREST

Review Lecture
B. Intangible Personal Property

Kinds (as provided by Section 104, Tax Code):
- franchise which must be exercised in the Philippines

- shares, obligations or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws; shares,
obligations or bonds by any foreign corporation eighty-five percent (85%) of the
business of which is located in the Philippines
- shares, obligations or bonds issued by any foreign corporation if such shares,

obligations or bonds have acquired a business situs in the Philippines
- shares or rights in any partnership, business or industry established in the

Philippines, shall be considered as situated in the Philippines
*all are considered as situated in the Philippines
SITUS OF INTANGIBLE PERSONAL PROPERTIES
GR: Location is following the domicile of the owner (mobilia secuntur personam)
XPN: The above mentioned intangible personal properties are all considered as situated
in the Philippines even if they are not.
-> That where the decedent or donor was a nonresident alien at the time of his death or
donation, as the case may be, his real and personal property so transferred but which
are situated outside the Philippines shall not be included as part of his ‘gross estate’ or
‘gross gift’ .
XPN to XPN: Reciprocity rule: When the foreign country laws does not impose estate
tax on similar intangible personal properties of Filipino citizens who are non-resident
aliens therein, then the Philippines will not also impose estate tax on the intangible
personal properties of an alien in the Philippines at the time of his death.
-> That no tax shall be collected under this Title in respect of intangible personal
property: (a) if the decedent at the time of his death or the donor at the time of the
donation was a citizen and resident of a foreign country which at the time of his death or
donation did not impose a transfer tax of any character, in respect of intangible personal
property of citizens of the Philippines not residing in that foreign country, or (b) if the
laws of the foreign country of which the decedent or donor was a citizen and resident at
the time of his death or donation allows a similar exemption from transfer or death taxes

Review Lecture
of every character or description in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country.
*example: XYZ is a domestic corporation. Si Mr A ay may shares of stocks worth P1M

sa XYZ Corp. Si Mr A ay isang US citizen and nakatira din sya sa US, so isa syang
NRA. The general rule in determining situs for purpose of income taxation, follow the
Domicile of the owner (mobilia secuntur personam). In determining the situs of an
intangible personal property, mobilia secuntur personam applies. Such as when Mr A
donates his shares of stocks from XYZ Corp (a domestic corporation) which is worth
P1M, hindi yan masasubject sa donor’s tax because of the rule on mobilia secuntur
personam. Exception to this is the rule stated in Sec 104 of the Tax Code at nakasulat
dyan na shares of stocks issued by a domestic corporation, ito ay income sourced
within. So pag dinonate ni Mr A yung stocks nya na issued ng domestic corp, subject na
yan sa donor’s tax, ididisregard natin yung mobilia secuntur personam rule, iaapply mo
si Sec 104. Exception to the exception is the reciprocity rule (baliktaran - 69): so dito
hindi natin ita-tax yung P1M kung sa US ay hindi tinatax yung mga Pilipino na may
similar shares of stocks sa domestic corp dun sa US. So hindi tayo magi impose ng any
tax on P1M. The reciprocity rule is is a valid remedy provided by law in order to reduce
the impact of double taxation in the broad sense.
TRANSFER IN CONTEMPLATION OF DEATH
Sec 85 (B), TAX CODE: Transfer in Contemplation of Death. — To the extent of any
interest therein of which the decedent has at any time made a transfer, by trust or
otherwise, in contemplation of or intended to take effect in possession or enjoyment at
or after death, or of which he has at any time made a transfer, by trust or otherwise,
under which he has retained for his life or for any period which does not in fact end
before his death (1) the possession or enjoyment of, or the right to the income from the
property, or (2) the right, either alone or in conjunction with any person, to designate the
person who shall possess or enjoy the property or the income therefrom; except in case
of a bona fide sale for an adequate and full consideration in money or money’s worth.
-> Buhay ka pa ang property ay binenta mo na kasi mamamatay ka na. Pag namatay ka
na, dahil it is a transfer in contemplation of death. You are selling the property because
of the thought of impending death, that is in the nature of a transfer in contemplation of
death and therefore, it forms part of your gross estate for purposes of computing your
estate tax due. Now, if your transfer in contemplation of death is for insufficient
consideration is at at the same time, a revocable transfer and a property passing under
general power of appointment, then, it will be forming part of your gross estate pero ano
ang isasama, the difference between the fair market value of the property at the time of

Review Lecture
the decedent’s death and the consideration paid (FMV at decedent’s death minus
Consideration)
TRANSFER FOR INSUFFICIENT CONSIDERATION OR LESS THAN ADEQUATE IN

ESTATE TAX:
Sec 85 (G), TAX CODE: Transfers for Insufficient Consideration. — If any one of the
transfers, trusts, interests, rights or powers enumerated and described in Subsections
(B), (C) and (D) of this Section is made, created, exercised or relinquished for a
consideration in money or money’s worth, but is not a bona fide sale for an adequate
and full consideration in money or money’s worth, there shall be included in the gross
estate only the excess of the fair market value, at the time of death, of the property
otherwise to be included on account of such transaction, over the value of the
consideration received therefor by the decedent.
PROCEEDS OF LIFE INSURANCE
Income tax side: habang buhay ka nagbayad ka ng premium pag namatay ka the
proceeds of the life insurance will go to your designated beneficiaries. Except the
interest on the proceeds ha, the proceeds of the life insurance will be excluded from the
computation of the gross income, so walling income tax due.
Estate tax side: Kasi kailangan bawiin ng gobyerno. What are the rules on life insurance
policy so it will not also be subject to income tax?
(1) If the designated beneficiary is himself, his estate, his executor, his administrator,
whether the designation is revocable or irrevocable, this is included in the gross
estate.
(2) If the designated beneficiary is other than himself, his estate, his executor/
administrator, and the designation is revocable, you still include in the gross estate.
(3) If the designated beneficiary is any person than himself, his estate, his executor/
administrator, and the designation is irrevocable, then we exclude that in the
computation of the gross estate.

Review Lecture
DEDUCTIONS IN THE COMPUTATION OF ESTATE TAX
A. Unpaid mortgage
Pagka ikaw yung nangutang na may mortgage at hindi mo nabayaran si mortgage.

Sinong namatay? = Debtor na hindi nakapagbayad nung sya ay namatay, so sya ang
mortgagor nung property. So dahil nagmortgage sya ng property nya, kailagan yun
idagdag sa gross estate dahil sya ang may ari. So idadagdag mo sa gross estate yung
property na minortgage bago mo deduct si unpaid mortgage (or yung value ng utang na
hindi nabayaran)
KIND OF WITHIN
WITHOUT
UNPAID MORTGAGE
TAXPAYER
(DECEDENT) -> All properties located -> All properties of the

of the taxpayer in the taxpayer located in the
Philippines when Foreign country when
decedent died decedent died
RESIDENT SUBJECT TO ESTATE SUBJECT TO ESTATE ALLOWED TO BE

CITIZEN TAX TAX BOTH IN THE DEDUCTIBLE IN FULL
PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED
NON-RESIDENT SUBJECT TO ESTATE SUBJECT TO ESTATE ALLOWED TO BE

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED
RESIDENT ALIEN SUBJECT TO ESTATE SUBJECT TO ESTATE ALLOWED TO BE

TAX BOTH IN THE TAX BOTH IN THE DEDUCTIBLE IN FULL
PHILIPPINES AND IN PHILIPPINES AND IN
THE FOREIGN THE FOREIGN
COUNTRY WHERE IT IS COUNTRY WHERE IT
LOCATED IS LOCATED

Review Lecture
NON-RESIDENT SUBJECT TO ESTATE NOT SUBJECT TO ALLOWED TO BE
ALIEN ETB TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN
SUBJECTED TO PROPORTION TO THE
DONOR’S TAX IN THE ESTATE LOCATED IN THE
FOREIGN COUNTRY PHILIPPINES
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

ALIEN NETB TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF
SPECIAL SUBJECT TO ESTATE NOT SUBJECT TO ALLOWED TO BE

NRANETB
TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN
(Expats working for SUBJECTED TO PROPORTION TO THE
offshore banking DONOR’S TAX IN THE ESTATE LOCATED IN THE
units, petroleum oil FOREIGN COUNTRY PHILIPPINES
service contractors WHERE THE
and multinational DECEDENT IS A
companies) CITIZEN/RESIDENT OF

Review Lecture
B. Unpaid taxes
Pag ikaw ay namatay ng may utang sa gobyerno, yung utang mo sa Gobyerno will
forever survive you. So yung estate mo, diba sa Wills & Succession and SpecPro, diba
pag may namatay ka at dinidistribute ang estate mo, yung gobyerno sa settlement of
estate, may utang kang buwis, unang babayaran because it survives the decedent.
Therefore, from the POV of estate tax, deductible naman sya.
KIND OF WITHIN
WITHOUT
UNPAID TAXES
TAXPAYER


PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

LOCATED IS LOCATED

WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

Review Lecture
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

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Review Lecture
C. Casualty loss
Pagkamatay mo hanggang isang taon after your death at merong casualty loss arising
from theft, robbery, embezzlement, fire, storm, shipwreck or other natural calamity and
the same is not compensated by the insurance. You can claim it as deduction from
gross estate. Provided that if you already claimed casualty loss as a deduction for
purposes of your income tax, you can no longer claim it as a deduction in your estate
tax.
KIND OF WITHIN
WITHOUT
CASUALTY LOSS
TAXPAYER


CITIZEN TAX TAX BOTH IN THE DEDUCTIBLE IN FULL,
PHILIPPINES AND IN PROVIDED THAT THEY DID
THE FOREIGN NOT CLAIM IT AS A
COUNTRY WHERE IT DEDUCTION FOR INCOME
IS LOCATED TAX PURPOSES

CITIZEN TAX TAX BOTH IN THE DEDUCTIBLE IN FULL,
PHILIPPINES AND IN PROVIDED THAT THEY DID
THE FOREIGN NOT CLAIM IT AS A
COUNTRY WHERE IT DEDUCTION FOR INCOME
IS LOCATED TAX PURPOSES

TAX BOTH IN THE TAX BOTH IN THE DEDUCTIBLE IN FULL,
PHILIPPINES AND IN PHILIPPINES AND IN PROVIDED THAT THEY DID
THE FOREIGN THE FOREIGN NOT CLAIM IT AS A
COUNTRY WHERE IT IS COUNTRY WHERE IT DEDUCTION FOR INCOME
LOCATED IS LOCATED TAX PURPOSES

WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

Review Lecture
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

NRANETB

Review Lecture
D. Claims against the estate
Sino ang namatay? Debtor. Nakamatayan ni debtor na may utang sya sa creditor. Dahil
hindi nagbayad si debtor ng kanyang utang, idadagdag mo sa gross estate yung value
ng utang na hindi nya nabayaran bago magclaim sa estate ni debtor si creditor.
KIND OF WITHIN
WITHOUT
CLAIMS AGAINST THE
TAXPAYER
ESTATE

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

LOCATED IS LOCATED

WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

Review Lecture
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

NRANETB

Review Lecture
E. Claims against insolvent persons
Sino ang namatay? Creditor. So ang may-ari ng credit ay yung namatay, kaya dapat
dagdag sa gross estate ni creditor yung utang mismo ni creditor bago ibawas yung
value ng utang na hindi nabayaran.
KIND OF WITHIN
WITHOUT
CLAIMS AGAINST
TAXPAYER
INSOLVENT PERSONS

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

LOCATED IS LOCATED

WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

Review Lecture
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

NRANETB

Review Lecture
F. Transfer for public use
When you donate inter vivos in favor of the Government, you are allowed to deduct
donor’s tax. So, it is the same with donation mortis causa.
KIND OF WITHIN
WITHOUT
TRANSFER FOR PUBLIC
TAXPAYER
USE

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

LOCATED IS LOCATED

ALIEN ETB TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN FULL
SUBJECTED TO
DONOR’S TAX IN THE
FOREIGN COUNTRY
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

Review Lecture
ALIEN NETB TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN FULL
SUBJECTED TO
DONOR’S TAX IN THE
FOREIGN COUNTRY
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

NRANETB
TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN FULL
(Expats working for SUBJECTED TO
offshore banking DONOR’S TAX IN THE
units, petroleum oil FOREIGN COUNTRY

Review Lecture
G. Conjugal share of the surviving spouse
KIND OF WITHIN
WITHOUT
CONJUGAL SHARE OF THE
TAXPAYER
SURVIVING SPOUSE

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

LOCATED IS LOCATED

ALIEN ETB TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN FULL WITH
SUBJECTED TO RESPECT TO CONJUGAL
DONOR’S TAX IN THE ASSETS LOCATED IN THE
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

ALIEN NETB TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN FULL WITH
SUBJECTED TO RESPECT TO CONJUGAL
DONOR’S TAX IN THE ASSETS LOCATED IN THE
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

Review Lecture
NRANETB
TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN FULL WITH
(Expats working for SUBJECTED TO RESPECT TO CONJUGAL
offshore banking DONOR’S TAX IN THE ASSETS LOCATED IN THE

Review Lecture
H. Standard Deductions
Threshold: P5 million
KIND OF WITHIN
WITHOUT
STANDARD DEDUCTIONS
TAXPAYER


CITIZEN TAX TAX BOTH IN THE DEDUCTIBLE UP TO P10M;
PHILIPPINES AND IN EXCESS SHALL BE
THE FOREIGN SUBJECT TO ESTATE TAX
COUNTRY WHERE IT
IS LOCATED

COUNTRY WHERE IT
IS LOCATED

TAX BOTH IN THE TAX BOTH IN THE DEDUCTIBLE UP TO P10M;
PHILIPPINES AND IN PHILIPPINES AND IN EXCESS SHALL BE
THE FOREIGN THE FOREIGN SUBJECT TO ESTATE TAX
LOCATED IS LOCATED

ALIEN ETB TAX; IT WILL BE ESTATE TAX DEDUCTIBLE UP TO P500K;
SUBJECTED TO EXCESS SHALL BE
DONOR’S TAX IN THE SUBJECT TO ESTATE TAX
FOREIGN COUNTRY
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

ALIEN NETB TAX; IT WILL BE ESTATE TAX DEDUCTIBLE UP TO P500K;
SUBJECTED TO EXCESS SHALL BE
DONOR’S TAX IN THE SUBJECT TO ESTATE TAX
FOREIGN COUNTRY
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

Review Lecture
NRANETB
TAX; IT WILL BE ESTATE TAX DEDUCTIBLE UP TO P500K;
(Expats working for SUBJECTED TO EXCESS SHALL BE
offshore banking DONOR’S TAX IN THE SUBJECT TO ESTATE TAX

Review Lecture
I. Family Home
Threshold: P10 million
KIND OF WITHIN
WITHOUT
FAMILY HOME
TAXPAYER


COUNTRY WHERE IT
IS LOCATED

COUNTRY WHERE IT
IS LOCATED

TAX BOTH IN THE TAX BOTH IN THE DEDUCTIBLE UP TO P10M;
PHILIPPINES AND IN PHILIPPINES AND IN EXCESS SHALL BE
THE FOREIGN THE FOREIGN SUBJECT TO ESTATE TAX
LOCATED IS LOCATED
NON-RESIDENT SUBJECT TO ESTATE NOT SUBJECT TO NO FAMILY HOME IN THE

ALIEN ETB TAX; IT WILL BE ESTATE TAX PHILIPPINES, SO NOT
SUBJECTED TO ENTITLED TO THIS
DONOR’S TAX IN THE DEDUCTION
FOREIGN COUNTRY
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF
NON-RESIDENT SUBJECT TO ESTATE NOT SUBJECT TO NO FAMILY HOME IN THE

ALIEN NETB TAX; IT WILL BE ESTATE TAX PHILIPPINES, SO NOT
FOREIGN COUNTRY
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

Review Lecture
SPECIAL SUBJECT TO ESTATE NOT SUBJECT TO NO FAMILY HOME IN THE
NRANETB
TAX; IT WILL BE ESTATE TAX PHILIPPINES, SO NOT
(Expats working for SUBJECTED TO ENTITLED TO THIS
offshore banking DONOR’S TAX IN THE DEDUCTION

Review Lecture
J. Vanishing Deductions
Sec. 86 (A) (5) (5) Property Previously Taxed. — An amount equal to the value specified
below of any property forming a part of the gross estate situated in the Philippines of
any person who died within five (5) years prior
to the death of the decedent, or transferred to the decedent by gift within five (5) years
prior to his death, where such property can
be identified as having been received by the decedent from the donor by gift, or from
such prior decedent by gift, bequest, devise or inheritance, or which can be identified as
having been acquired in exchange for property so received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year
prior to the death of the decedent, or if the property was transferred to him by gift within
the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but
not more than two (2) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but
not more than three (3) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years
but not more than four (4) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years
but not more than five (5) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death.
These deductions shall be allowed only where a donor’s tax or estate tax imposed
under this Title was finally determined and paid by
or on behalf of such donor, or the estate of such prior decedent, as the case may be,
and only in the amount finally determined as the value of such property in determining
the value of the gift, or the gross estate of such prior decedent, and only to the extent
that the value of such property is included in the decedent’s gross estate, and only if in
determining the value of the estate of the prior decedent, no deduction was allowable
under paragraph (2) in respect of the property or properties given in exchange therefor.
Where a deduction was allowed of any mortgage or other lien in determining the donor’s
tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to
the decedent’s death, then the deduction allowable under said Subsection shall be

Review Lecture
reduced by the amount so paid. Such deduction allowable shall be reduced by an
amount which bears the same ratio to the amounts allowed as deductions under
paragraphs (1) and (3) of this Subsection as the amount otherwise deductible under
said paragraph (2) bears to the value of the decedent’s estate. Where the property
referred to consists of two or more items, the aggregate value of such items shall be
used for the purpose of computing the deduction.
*example: Ang requirements ng vanishing deductions ay (a) identified property; (b) that
the estate tax for the prior estate is paid; (c) we are now computing for the estate tax of
the present decedent wherein the vanishing deduction will be allowed. *KNOCK ON
WOOD* Si Lumbera may ari ng bahay at lupa, tapos may anak sya na si Miguel. Tigok
si Lumbera. Napunta ang bahay at lupa kay Miguel, by way of inheritance. Dahil dyan,
magkocompute ng gross estate at estate tax due ni Lumbera kasi natigok sya eh.
Therefore, kasama sa gross estate ni Lumbera yung bahay at lupa na na kay Miguel na
ngayon. So dahil bayad na si Lumbera ng estate tax nya, sya na ang prior decedent. So
si Miguel na ngayon ang may ari ng bahay at lupa (identified property), tapos natigok
sya, so sya na ngayon ang present decedent at nagkocompute ng kanyang gross
estate at kasama na naman yung bahay at lupa na minana nya kay Lumbera. Here,
there is double taxation in the broad sense. The law recognizes the impact kasi halos
dalawang beset tinatax yung identified property eh at pwede yang tax hanging ka-apu
apuhan pagka may namamatay. So ang sabi dyan sa vanishing deductions kaya ang
tawag dyan the property is previously taxed kasi tinax talaga yun kay Lumbera. Ngayon
andito tayo sa estate ni Miguel, eh kasama si bahay at lupa so itatax nanaman yan ng
estate tax. Now, in order to reduce the impact of double taxation in the broad sense ang
sabi ng batas, the present decedent’s estate (or Miguel’s estate) is entitled to claim the
vanishing deductions. How much? It depends on the period of time between the death
of the prior decedent and the present decedent.
KIND OF WITHIN
WITHOUT
VANISHING DEDUCTIONS
TAXPAYER


Review Lecture
PHILIPPINES AND IN
THE FOREIGN PROVIDED If the present
COUNTRY WHERE IT decedent died:
IS LOCATED
0-1 year from the death of
the prior decedent = 100%
1-2 years from the death of




Beyond 5 years = 0
deduction, the current estate
of the present decedent is
no longer entitled to the
vanishing deductions

Review Lecture
PHILIPPINES AND IN
THE FOREIGN PROVIDED If the present
COUNTRY WHERE IT decedent died:
IS LOCATED




Beyond 5 years = 0

Review Lecture

THE FOREIGN THE FOREIGN PROVIDED If the present
COUNTRY WHERE IT IS COUNTRY WHERE IT decedent died:
LOCATED IS LOCATED




Beyond 5 years = 0

Review Lecture
ALIEN ETB TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN FULL WITH
SUBJECTED TO RESPECT TO PROPERTIES
DONOR’S TAX IN THE LOCATED IN THE
WHERE THE
DECEDENT IS A PROVIDED If the present
CITIZEN/RESIDENT OF decedent died:





Beyond 5 years = 0

Review Lecture
ALIEN NETB TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN FULL WITH
SUBJECTED TO RESPECT TO PROPERTIES
DONOR’S TAX IN THE LOCATED IN THE
WHERE THE
DECEDENT IS A PROVIDED If the present
CITIZEN/RESIDENT OF decedent died:





Beyond 5 years = 0

Review Lecture
NRANETB
TAX; IT WILL BE ESTATE TAX DEDUCTIBLE IN FULL WITH
(Expats working for SUBJECTED TO RESPECT TO PROPERTIES
offshore banking DONOR’S TAX IN THE LOCATED IN THE

and multinational DECEDENT IS A PROVIDED If the present
companies) CITIZEN/RESIDENT OF decedent died:





Beyond 5 years = 0

Review Lecture
K. Retirement Benefits
Add the value of the retirement benefits to the gross estate before it shall be deducted.
KIND OF WITHIN
WITHOUT
RETIREMENT BENEFITS
TAXPAYER


PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

PHILIPPINES AND IN
THE FOREIGN
COUNTRY WHERE IT
IS LOCATED

LOCATED IS LOCATED
NON-RESIDENT SUBJECT TO ESTATE NOT SUBJECT TO NO RETIREMENT PLAN IN

ALIEN ETB TAX; IT WILL BE ESTATE TAX THE PHILIPPINES, SO NOT
FOREIGN COUNTRY
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF
NON-RESIDENT SUBJECT TO ESTATE NOT SUBJECT TO NO RETIREMENT PLAN IN

ALIEN NETB TAX; IT WILL BE ESTATE TAX THE PHILIPPINES, SO NOT
FOREIGN COUNTRY
WHERE THE
DECEDENT IS A
CITIZEN/RESIDENT OF

Review Lecture
SPECIAL SUBJECT TO ESTATE NOT SUBJECT TO NO RETIREMENT PLAN IN
NRANETB
TAX; IT WILL BE ESTATE TAX THE PHILIPPINES, SO NOT
(Expats working for SUBJECTED TO ENTITLED TO THIS
offshore banking DONOR’S TAX IN THE DEDUCTION

Review Lecture
—————————————————————————————————
TAX REMEDIES
- Collection of taxes
- Sa pangongolekta ng gobyerno ng buwis iisa ang cause of action. So ang cause of
action ay magbayad ang taumbayan ng buwis. Wala ditong mga counterclaim, third
party-claimant, walang ganyan.
- The procedure always start with the taxpayer when he/she filed a Return. Tandaan
nyo, all national taxes are self-assessed taxes. Ibig sabihin, ang taxpayer ang nagko-
compute ng sarili nyang babayarang buwis. As compared to local taxes, na automatic
assessment, dito hindi. So merong two concepts: self-assessment and pay as you file
system. So lahat ng internal revenue taxes ay may Returns.
- A Return is a verified statement prepared by the taxpayer providing for the material
information relevant to the kind of tax that you are paying for. Since the start of our
discussions, mapapansin nyo na sa income tax, merong gross income and concept
of inclusions and deductions. Yung manner of computation nun is yun ang laman ng
Return sa Income tax. Dun sa Value Added Tax ganun din, magkano ang gross sales/
receipts, magkano binayaran na input/output. Sa Donor’s tax ganun din, magkano
ang donasyon, magkano ang deduction, magkano ang tax due. Sa Estate Tax ganun
din, magkano yung gross estate, magkano yung authorized deduction na applicable
tapos ko-compute-in ang tax at magkano ang babayaran. So every internal revenue
tax is self-assessed tax covered by a return and you pay the tax as you file the return.
- Kailan due ang return?
FILING OF THE RETURN
DEADLINE EFFECT IF RETURN WAS FILED

AFTER THE DEADLINE DATE

Review Lecture
RETURN OF INCOME TAX RATE CIE = April 15 of the following 25% PENALTY + double the
(TABLE) year.
legal interest (12%) per annum =
Mag iiba lang yan pag may computed on a daily basis from
substituted filing.
day of delay.
-> substituted filing = mag apply

lang yan if an employee who is a
CIE has only one employer from *IN CASE OF BAD FAITH/
January to December. It is the FRAUD = 50% surcharge +
employer who files the Return double the legal interest (12%)
for and on behalf of the per annum = computed on a
taxpayer, as a substitute for the daily basis from day of delay.
Return that he should have filed.
Pero if CIE and maraming

employers = April 15 of the
following year
-> substituted filing = February

28 of the following year
SEP/SEI/MIE = file for quarterly

returns: May 15, August 15,
November 15 and on/or before
April 15 of the following year
Corporation = file for quarterly

returns: first 3 quarterly returns
should be filed within 60 days
from close of the quarter and
the final consolidated return:
(a) on/or April 15 of the

following year if corporation
uses calendar year
(b) on/or before the 15th day of

the 4th month following the
close of the fiscal year
RETURN OF CAPITAL GAINS 30 days from sale 25% PENALTY + double the
TAX legal interest (12%) per annum =
computed on a daily basis from
day of delay.
*IN CASE OF BAD FAITH/

FRAUD = 50% surcharge +
double the legal interest (12%)
per annum = computed on a
daily basis from day of delay.

Review Lecture
RETURN OF 8% TRAIN LAW File for quarterly returns: May 25% PENALTY + double the
RATE 15, August 15, November 15 legal interest (12%) per annum =
and on/or before April 15 of the computed on a daily basis from
following year day of delay.

RETURN OF VAT File for quarterly returns: May 25% PENALTY + double the
15, August 15, November 15 legal interest (12%) per annum =
and on/or before April 15 of the computed on a daily basis from
following year day of delay.

RETURN OF DONOR’S TAX 30 days from gift 25% PENALTY + double the
day of delay.

RETURN OF ESTATE TAX 1 year from death 25% PENALTY + double the
day of delay.


Review Lecture
- When you already filed a return, can you amend it? YES. So the Original Return +
Amended Return, if any.
- When are you allowed to amend a return? A taxpayer is allowed to amend a Return
within 3 years from the date of the filing of the original return, provided that no notice
of investigation is received by the taxpayer. Beyond 3 years, you can no longer
amend the Return.
- Why is it stated by the law like that? Kasi kung papayagan kang mag amend matapos
kang tumanggap ng notice of investigation from BIR, definitely ia-amend mo yung
Return mo in accordance dun sa findings ng investigation so that will not be allowed.
A taxpayer may have filed the Return in:
(a) good faith
(b) fraudulent or in bad faith
(c) No return is filed at all = pwedeng mangyari yan. Pag hindi ka nag file ng return, the
BIR has the power to file the Return on your behalf.
Papaano ginagawa yun? Depending on the method used by the BIR - providing for
presumptive gross sales, using the net worth method, comparing your gross sales with
the gross sales of similar industries/taxpayers within the same vicinity.
- Where do you file the Return?

Ang Pilipinas ay hinati-hati sa tax jurisdiction. So we have Regional Offices (RO) and
within one regional office, merong mga Revenue District Offices (RDO) na may sari-
sariling jurisdiction. You can find it dun sa BIR, kasi sila ang gumagawa ng taxing
jurisdiction of each RDO and ROs.
- Wrong venue of filing?

Remember pay as you file, so when you file the Return, you pay the tax due. Paano
kung tinanggap ng BIR pero mali ang venue? Ay wala kang rason. Walang estoppel
dito. So anong mangyayari? It’s as if you did not file any Return. It is as if you did not
pay any taxes at all. So make sure that you file your Return and you pay the

Review Lecture
corresponding tax within the prescribed venue and within prescribed due date.
Otherwise, there will be a lot of consequence for you.
- Anong gagawin ni BIR sa Return mo?
Aaralin. If the BIR finds nothing wrong with the Returns you filed, then wala kang
problema. But the BIR may have findings on the Returns you filed.
So when they find something wrong, they will issue a Letter of Authority (LOA) to
investigate. It is also A Notice of investigate. When you received that, it’s the start of the
investigation by the BIR and despite the fact that you have the three year period from
the filing of the Original Return, you can no longer file an Amended Return.
When you have an existing LOA, you will be required to submit documents. Tandaan
nyo, ang BIR nagre-require, nagsa-subpoena, nagsusulat sa inyo na i-submit ninyo ang
mga papeles na ito because yun ang aaralin ng BIR. When the BIR, after the
submission of the documents as required finds something wrong in the Return that you
filed, it will now issue a Preliminary Assessment Notice (PAN). You will be given 15 days
to reply. With or without your reply, the BIR will issue a Final Assessment Notice (FAN).
- what are the instances wherein the PAN is not required?

(a) when it involves excise taxes
(b) When there is a mathematical error in the computation as appearing in the face of
your Return
(c) When it involves discrepancy in the withholding taxes as appearing in the face of
your Return and the withholding tax has been remitted to the BIR
-> Under what instances is PAN no longer required? A Preliminary Assessment Notice
shall not be required in any of the following cases, in which case, issuance of the formal
assessment notice for the payment of the taxpayer’s deficiency tax liability shall be
sufficient:
* When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer; or
* When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or

Review Lecture
* When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year; or
* When the excise tax due on excisable articles has not been paid; or
* When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.
Source: http://www.sas-ph.com/Tax-Accounting-Topics/bir-audit-procedures.html
*Transcriber note: So madami pang grounds but when any of these three
grounds that Atty Lumbera mentioned is/are existing or present, the BIR is
no longer required to issue a PAN. In lieu thereof, it will issue a FAN.
- Denial of due process

If hindi sinunod ang process na magissue muna ng LOA -> PAN (if di exempted) ->
FAN, bawal ‘to ire-arrange. If the BIR does not follow this procedure, that’s a denial of
due process and the FAN is not valid.
- Until when can the BIR issue a FAN?
RETURN WAS FILED IN: PRESCRIPTIVE PERIOD FOR FAN
(GIVEN TO THE GOVERNMENT/BIR TO FILE FAN)
GOOD FAITH AND FILED IT BEFORE DUE DATE WITHIN 3 YEARS FROM DUE DATE
GOOD FAITH AND FILED IT ON DUE DATE WITHIN 3 YEARS FROM DUE DATE
GOOD FAITH AND FILED IT BEYOND DUE DATE WITHIN 3 YEARS FROM ACTUAL DATE OF
FILING
FRAUDULENT/BAD FAITH WITHIN 10 YEARS FROM DISCOVERY OF THE

FILING OF FRAUDULENT RETURN
*disregarding when the Return is actually filed

because the Govt will always count from when the
fraud was discovered
NO RETURN WAS FILED Two options of BIR:
(1) File a Return on your behalf; or
(2) Issue a FAN, 10 years from discovery of non-

filing of the Return

Review Lecture
WAIVER
Extension: walang sinabi ang batas. It may be
extended for one year, pwedeng two years, three
When the prescriptive periods of 3 and 10 years years, four years. Eh kung pumayag ka, problems
are about to expire and the BIR has not issued mo yun.
any FAN, the BIR may require you to execute a
waiver. This waiver should be executed prior to
the original periods. Because the date of
execution and the date of acceptance by the BIR
officer should be both within the prescriptive
period. Ratio: nothing to extend if it has already
expired.
The execution of a waiver is a contract between

the taxpayer and the BIR allowing the BIR to issue
a FAN beyond these periods.
Kasi pag mag eexpire yan katapusan na ng

karapatan ng Gobyerno na mangolekta. So unang
step pa lang dahil di naka-collect ang BIR
because inallow nila na magprescribe ang period
then tapos na ang usapan. Wala ng pwedeng
singilin sayo. Pero the BIR, before the expiration
of these periods, may require you to execute a
waiver.
What is the waiver about? You are waiving your

right to be assessed within the prescriptive period.
Ibig sabihin binibigyan mo ng karapatan ang BIR
na magissue ng FAN even beyond these
prescriptive periods.
Strict requirements? In writing; the taxpayer’s

signature and date of execution must appear in
the face of the waiver; the signature of the BIR
officer and the date of acceptance by the BIR
officer must likewise be indicated in the face of
the waiver; it must be duly notarized; three copies:
taxpayer, records of the case, BIR.
In case of failure of compliance with these very

strict requirements, the waiver executed by the
taxpayer will not be considered as valid, therefore,
the right of the BIR to execute/issue a FAN is not
extended.
- what are the valid requirements of a FAN?

Review Lecture
(a) In writing (kahit anong format basta nakasulat sa papel);
(b) Addressed to the taxpayer (the address you indicated in your Return or yung official
address na indicate mo when you registered sa BIR; if nagbago ka ng address, it is
your obligation to inform BIR for them to update yung records nila of your change of
address)
(c) Providing for the basis in fact and in law of the amount of the tax due. Nakasulat
doon kung anong klaseng tax ang sinisingil sayo, anong period ang covered. Pag
absent yan, not a valid FAN.
(d) Providing for the amount of tax due na naka-break down. Sabihin basic or principal
amount, penalty, interest, surcharge, total amount.
(e) May due demand to pay na nakasulat na sinisingil ka.
(f) May due date for the payment of tax
(g) Signed by the duly authorized BIR representative
(h) Must be validly served to the taxpayer
- Paano sineserve ang FAN sa taxpayer?

More or less like the service of summons
- May priority ba kung paano ang service?

Wala, kahit ano pwede. Pero eto yung mga options sa pagserve ng BIR, part of their
regulations:
(a) personal service (pipirma sa received with the date si taxpayer)
(b) Substituted personal service to a person of sufficient discretion (sufficient discretion

= the person to whom you serve it other than the taxpayer is/has the capacity to
fully comprehend the consequences of a valid assessment notice. That’s the
standard, so hindi kailangan nakapag aral. Pero pagsinerve mo sa person of
sufficient discretion, kailangan mong kumuha ng witness. Sinong witness? Punta ka
sa barangay. kumuha ka ng kagawad, isama mo yun pagnagserve ka.
- Paano pag ni-refuse?

Review Lecture
Edi ino-note mo na ni refuse ni taxpayer or ni person of sufficient discretion yung FAN.
Gagawa ka ng affidavit na pumunta ka sa taxpayer, wala siya or wala ding person of

sufficient discretion at ilista mo kung bakit ayaw tanggapin ni taxpayer or ni person of
sufficient discretion. Isulat mo kasi yan yung proof of receipt.
- When that is not possible, papaano kung korporasyon?

Personal service. Iseserve mo sa persons na same sa sinasabi sa ROC. But here in the
case of the absence of the duly authorized representatives of the corporation, can you
serve it to anybody else? YES, in the principal office of the taxpayer, as declared in his
Return and in the business’ tax registration.
- Paano pag di mo ma-serve ng personal and substituted service?

Registered mail ang isa mo pang alternative. Pwede ng fast courier, walang bawal
basta ang importante kaya mong idetermine kung na-deliver at natanggap yung mail.
Saan makikita yun? Sa registry receipt.
- Importante sa service of the FAN:

(1) Was it validly served?
(2) Was it validly received?
- Kailangan ba na ang FAN ay matanggap ni taxpayer within the aforementioned

prescriptive periods?
No. Ang importante ay maissue ng BIR yung FAN within the prescriptive periods or
within the period covered by a valid waiver. Regardless of whether it was received by
the taxpayer beyond the prescriptive period. So hindi important yung receipt within the
prescriptive period pero what is important is it is issued within the prescribed periods.

Review Lecture
PROTEST
- Bilang taxpayer, saan ka nagfafile ng Protest?

Pagnakatanggap ka na ng FAN. Within 30 days from receipt of the FAN, the taxpayer
may file an Administrative Protest, it’s a sine qua non requirement. If you want to
question the FAN, you must file an administrative protest.
- Extendible ba yung period ng 30 days?
Never, regardless of any supervening event.
If the 30th day falls on a holiday or on a weekend, in which case, the next working day
is the end of the period of the 30 days.
- Anong itsura ng Protest?

Motion for Reconsideration or Motion for Reinvestigation.
-> backstory: Noong unang panahon, meron pa yang Motion for Recomputation, pero
wala na nyan ngayon.
- Motion for Reconsideration presumption?

You are not submitting additional documents
- Motion for Reinvestigation presumption?

You are submitting additional documents to assail the validity of the FAN.

Review Lecture
- Anong gagawin ni BIR sa Protest mo?
It may:
ACTION NG BIR ON THE EFFECT ON THE TAXPAYER WHAT YOU WILL RECEIVED
PROTEST
GRANT Nakangiti Actual Decision that the Protest

was granted
DENY Luhaan Final Letter of Demand
PARTLY GRANT/PARTLY DENY Kalahati nakangiti at Kalahati Actual Decision that the Protest
nakasimangot was partly granted/ partly denied
SIT ON IT Inaction for 180 days
Once a protest is filed, and the BIR acts on your Protest and sits on it within the
prescribed period, that’s the end of the administrative portion of the procedure.
*example #1: Nakareceive ka ng FAN. So nag file ka ng Protest on the 12th day within
receiving it.
There are two possibilities: (1) when you filed the protest, the same is complete in the
documents supporting your protest, so if your protest is complete and it is filed within
the 30-day period which is in this case in the 12th day, you count 180 days from that
day. When 180 days expired from the day you filed the protest and the BIR has not
issued any decision, then you have an option as a taxpayer.
(2) when you filed the protest, hindi kumpleto ng dokumento, lacking in supporting
documents, you will received a notice from the BIR requiring you to submit documents.
Take note: Ang BIR hindi sasabihin sayo kung anong dokumento ang dapat mong
isumite, the BIR will just tell you that you have lacking documents and yung lacking
documents na yun ikaw ang bahalang magsabi and magbigay sa BIR. Bakit? Edi ba
ikaw ang nagprotesta, ikaw ang nagkwe-question ng FAN ng BIR edi dapat alam mo rin
kung anong kulang mong dokumento na pagsupport sa iyong protesta.
In case there are lacking documents, the BIR will also require you to submit documents
within a period of 60 days. Not exceeding 60 days yan.
*example #2: Nakareceive ka ng FAN. So nag file ka ng Protest on the 12th day within
receiving it. Tapos nag require sayo si BIR na magsubmit ka ng lacking documents.
Nagsubmit ka on the 48th day of the 60-day period.

Review Lecture
Saan ka na magsastart ng 180 day period?
When your protest is not complete and you have lacking documents, you count the 180
day period from the time the BIR receives the lacking documents submitted. Because
there is a possibility na you mailed it, so the date of mailing is not the start of the 180
day period, because kailangan mong hinting matanggap ng BIR at pagnatanggap na ng
BIR yung lacking documents dun ka lang magbibilang ng 180 days.
Regardless whether your Protest is complete and incomplete pag nag expire si 180
days, what are your options? Tatawid ka ngayon ng judicial procedure.
ACTION NG BIR ON ITSURA NG WHAT YOU WILL NEXT STEP FOR THE
THE PROTEST TAXPAYER RECEIVED TAXPAYER
GRANT Nakangiti Actual Decision that the Manahimik ka na

Protest was granted forever
DENY Luhaan Final Letter of Demand Pupunta ng korte, 30
days from receipt of
actual decision denying
the Protest = CTA
DIVISION
PARTLY GRANT/ Kalahati nakangiti at Actual Decision that the Pupunta ng korte, 30
PARTLY DENY Kalahati nakasimangot Protest was partly days from receipt of
granted/ partly denied actual decision partly
granting/ partly denying
the Protest = CTA
DIVISION

Review Lecture
ACTION NG BIR ON ITSURA NG WHAT YOU WILL NEXT STEP FOR THE
THE PROTEST TAXPAYER RECEIVED TAXPAYER
SIT ON IT Inaction for 180 days Two options once na

magexpire ang 180
days:
(1) Pumunta ng korte

(CTA Division) = 30
days from the
expiration, pumunta
ka na ng court.
(2) If magexpire yung

30 days and hindi
ka nagpunta ng
court, maghintay ka
na lang ng decision
from the BIR
If you look at the illustration, it is only the taxpayer who goes up to the CTA. Why? The
BIR cannot go up to the CTA, kasi decision nya yung inaapela eh. Alangan namang si
BIR na nag deny or nag grant eh iaappeal nya decision nya.
*Take note: If you did not file a Protest, you can no longer question it because the FAN
becomes final na.
(a) CTA Division: In protest cases, the jurisdiction of the CTA is exclusive appellate to
review the decisions of the BIR denying the protest or partly granting/denying the
protest or in case of non-action by the BIR within a period of 180 days.
JUDICIAL ACTION OF ITSURA NG TAXPAYER ITSURA NG BIR NEXT PROCESS (sine

CTA DIVISION qua non requirement
ang pagfafile ng MR/
MNT 15 days from
receipt of the prejudicial
decision) = this is a
must, if hindi magfile ng
MR/MNT, magiging final
ang decision ni CTA
Division
GRANT Nakangiti Nakasimangot File ng MR/MNT si BIR
DENY Nakasimangot Nakangiti File ng MR/MNT si

Taxpayer

Review Lecture
PARTLY GRANTED/ Kalahati nakangiti at Kalahati nakangiti at File ng MR/MNT either
PARTLY DENIED Kalahati nakasimangot Kalahati nakasimangot si Taxpayer or BIR
(b) CTA en banc:
PREVIOUS JUDICIAL ACTION ITSURA NG BIR ITSURA NG NEXT PROCESS

DECISION NG OF CTA EN BANC TAXPAYER (sine qua non
CTA requirement ang
pagfafile ng MR/
MNT 15 days from
receipt of the
prejudicial
decision)
GRANT DENIED Nakasimangot Nakangiti File ng MR/MNT si

BIR
DENY GRANTED Nakangiti Nakasimangot File ng MR/MNT si

Taxpayer
PARTLY PARTLY Kalahati nakangiti Kalahati nakangiti File ng MR/MNT

GRANTED/ GRANTED/ at Kalahati at Kalahati either si Taxpayer
PARTLY DENIED PARTLY DENIED nakasimangot nakasimangot or BIR
(c) Supreme Court:
PREVIOUS DECISION JUDICIAL ACTION OF ITSURA NG TAXPAYER ITSURA NG BIR

NG CTA EN BANC THE SUPREME COURT
DENIED GRANTED Nakangiti Nakasimangot
GRANTED DENIED Nakasimangot Nakangiti

Review Lecture
*Tandaan: In protest cases, ang steps ay: daanan mo muna si administrative bago ka
tumawid ng judicial. Because the issue here is the validity of the FAN.
Ang susunod na tanong, habang nag administrative proceedings or nag judicial

proceedings kung san nag aaway ang taxpayer at BIR, pwede bang mangolekta ang
Gobyerno sa Inyo? Oo. The right of the government to collect is not dependent on these
procedures.
Diba pinroprotesta ko nga, so bakit mangongolekta? Ang sabi sa batas, taxes are the
lifeblood of the government no injunction rule against tax collection. Yang rule na yan ay
never ng nabago.
How can the BIR collect?
STAGE OF THE PROTEST CASE ACTIONS TO COLLECT
ADMINISTRATIVE (1) Notice of Levy;
(2) Warrant;
(3) Distraint;
(4) Compromise;
(5) Forfeiture;
(6) Garnishment
JUDICIAL (1) Civil Case; or
(2) Criminal Case

Review Lecture
Periods of collection:
BASIS PERIOD TO COLLECT
Pagnangolekta with the assessment

5 years from taxpayer’s receipt of the FAN
Take note: Nagiissue ng FAN within 3 or 10 years;
or period subject to the waiver executed between
taxpayer and BIR officer
Pagnangolekta without the issuance of the FAN 10 years from discovery of:
(as in nag decide si BIR na hindi na magissue ng (a) fraudulent return; or
FAN dahil dito:

(b) of non-filing
(a) pagnagfile ng fraudulent/bad faith na Return;
(b) pag hindi nagfile ng return si taxpayer at all
Kaya mangongolekta na lang ang BIR directly

from the taxpayer
So pagkatanggap ni taxpayer ng FAN at nagprotesta sya, pwedeng mangolekta ang

BIR. The filing of the Protest will not suspend the collection.
These periods of assessments and collections may be suspended pero hindi

mageexpire in accordance with any of the grounds mentioned in Section 222, Tax Code
is present. So pwede masuspend pero magreresume once na mawala na yung ground
for it to be suspended.
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of

Taxes. —
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file
a return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be filed without assessment, at any time within ten (10) years after
the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of
the tax, both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period agreed

Review Lecture
upon. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon
as provided in paragraph (b) hereinabove, may be collected
by distraint or levy or by a proceeding in court within the period agreed upon in
writing before the expiration of the five (5)-year period. The period so agreed upon
may be extended by subsequent written agreements made before the expiration of
the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding Section and
paragraph (a) hereof shall be construed to authorize the examination and
investigation or inquiry into any tax return filed in accordance with the provisions of
any tax amnesty law or decree.
- Paano kung judicial collection (criminal or civil case)? San magfafile ang BIR?
Regular ordinary courts will have jurisdiction of the criminal or civil case. Alamin nyo yuh
jurisdictional amounts.
*CIVIL COLLECTION CASES JURISDICTION:
LOCATION PRINCIPAL AMOUNT OF TAX DUE
RTC MTC CTA (exclusive original

jurisdiction)
WITHIN METRO Exceeding P400k Does not exceed P400k P1M and above
MANILA (exclusive of interests,
penalties and
surcharges)

Review Lecture
OUTSIDE METRO Exceeding P300k Does not exceed P300k P1M and above
penalties and
surcharges)
*example: A taxpayer from QC has a basic tax due of P300k, penalty of P80k, interest
of P50k. Total: P430,000. Paano dinedetermine ang jurisdiction ng amount? Yung
principal or basic tax lang ang pinaguusapan, so P300k. So dahil below P400k, sa MTC
sya ifafile ni BIR yung collection case. Kung sino matalo dyan, ang appellate jurisdiction
ay RTC, kung sino matalo sa RTC at gustong umapela, within 15 days need nyang
dumiretso na sa CTA en banc then off to SC.
Bakit ka didiretso ng CTA en banc after RTC? Because the RTC rendered its decision in
its appellate jurisdiction.
Paano kung ang court of origin sa tax collection case ay RTC at gusto mong iapela?
Within 30 days, sa CTA Division which is exercising its appellate jurisdiction ka muna
dadaan, bago sa CTA en banc, then Supreme Court.
COURT OF ORIGIN
APPELLATE COURT COURT REVIEWING THE FINAL
(Court exercising original DECISION OF THE APPELLATE
jurisdiction) COURT
MTC RTC CTA en banc

SC
Then 15 days MR/MNT
RTC CTA Division CTA en banc

SC
Then 15 days MR/MNT
*Yung MNT is only available if the CTA exercises original jurisdiction.
*CRIMINAL COLLECTION CASES JURISDICTION:
(1) Which does not result in tax deficiency

Review Lecture
= It depends on the prescribed penalty of the offense committed. But the CTA would not
exercise original jurisdiction on criminal cases which would not result in the tax
deficiency.
(2) Which results in tax deficiency = mode of collection on the part of BIR
May Preliminary investigation then if you are the fiscal where do you file the
Information?
If it results in tax deficiency, it depends on the jurisdictional amount of the regular courts.
LOCATION TAX DEFICIENCY AMOUNT
RTC MTC CTA (exclusive original

jurisdiction)
WITHIN METRO Exceeding P400k Does not exceed P400k P1M and above
penalties and
surcharges)
OUTSIDE METRO Exceeding P300k Does not exceed P300k P1M and above
penalties and
surcharges)
COURT OF ORIGIN
APPELLATE COURT COURT REVIEWING THE FINAL
(Court exercising original DECISION OF THE APPELLATE
jurisdiction) COURT
MTC RTC CTA en banc

SC
Then 15 days MR/MNT
RTC CTA Division CTA en banc

SC
Then 15 days MR/MNT

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—————————————————————————————————
REFUND
- two types:
(a) ordinary claim for refund
(b) refunds of excess input VAT, in zero-rated transactions
A. ORDINARY CLAIM FOR REFUND
- Meaning: There is an element of fraud or bad faith in the collection by the

Government
- Main summary: In Section 229 of the Tax Code or the Ordinary claim for refund for
illegally assessed, illegally collected, erroneously assessed and erroneously collected
internal revenue taxes was mahigpit ang proseso because the administrative and
judicial claim for refunds must be filed within the same two year period from payment
of the internal revenue tax being refunded.
- source: Sec 229, Tax Code:

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or
proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, or of any
sum alleged to have been excessively or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without
a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously
paid.
- Grounds:

Review Lecture
(a) illegally assessed
(b) illegally collected
(c) erroneously assessed
(d) erroneously collected
- two stages:
(1) Administrative
(2) Judicial
*Take note: No claim for refund will be allowed unless you go through the stages of
Administrative claim for refund and subsequently judicial claim for refund.
GROUNDS FILING OF ADMINISTRATIVE FILING OF JUDICIAL ACTION

ACTION PRESCRIBED PERIOD PRESCRIBED PERIOD (eto yung
30 day period)
illegally assessed Within two years from payment Within two years from payment
of illegally assessed internal of illegally assessed internal
revenue tax revenue tax
illegally collected Within two years from payment Within two years from payment
of illegally collected internal of illegally collected internal
erroneously assessed Within two years from payment Within two years from payment
of erroneously assessed internal of erroneously assessed internal
erroneously collected Within two years from payment Within two years from payment
of f erroneously assessed of f erroneously assessed
internal revenue tax internal revenue tax
*example #1: Nagfile ka ng administrative claim on the 3rd month. Dito walang inaction,
hihintayin mo si BIR na magdecide dun sa Refund mo. Paano kung on the last day eh
wala ka pang natatanggap na decision ng BIR on your refund? Kasalanan mo yan.
Dapat na file mo si judicial refund on the last day din para may 30 days ka to file it sa
CTA Division sana.

Review Lecture
*example #2: Nagfile ka ng administrative claim on the 3rd month. Paano kung
nakatanggap ka ng decision 5 days na lang ang natitira from the expiration of 2 year
period? Yang 5 days na lang ang natitira sayo to file it sa CTA Division.
period? Yang 20 days na lang ang natitira sayo to file it sa CTA Division.
period? Hindi mo hihintayin magexpire, whichever comes first dun sa days remaining
sayo or yung 30 days mo sa CTA Division.
*Pag di mo na file within the same period of two years yung judicial collection, hindi ka
makaka-akyat ng CTA. Wala kang 30 days.

Review Lecture
B. REFUNDS OF EXCESS INPUT VAT AND IN ZERO RATED TRANSACTIONS
- Main summary: In Section 112 of the Tax Code or the Refund of excess input VAT in
zero rated sales/transactions and cancellation of VAT registration = this is a special
type of refund, very specific, because it refers to refund of excess input VAT in zero-
rated transactions. You file the administrative claim within 2 years from the close of
the quarter when you have zero-rated transactions and within 2 years from the date
of the cancellation if it is the cancellation of VAT registration. The judicial claim will be
filed within 30 days from the denial of the claim by the BIR. Take note that the BIR is
now required by law to decide the claim for refund within 90 days from the filing
thereof. The none action of 120 day period is no longer available under the current
rules in TRAIN Law.
- source: Sec 112, Tax Code:

SEC. 112. Refunds or Tax Credits of Input Tax. —
(A) Zero-Rated or Effectively Zero-Rated Sales. — Any VAT-registered person,

whose sales are zero-rated or effectively zero-rated may, within two (2) years after
the close of the taxable quarter when the sales were made, apply for the issuance
of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not
been applied against output tax: Provided, however, That in the case of zero- rated
sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties
or services, and the amount of creditable input tax due or paid cannot be directly
and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales: Provided, finally, That for a
person making sales that are zero-rated under Section 108(B)(6), the input taxes
shall be allocated ratably between his zero-rated and non-zero- rated sales.
(B) Cancellation of VAT Registration. — A person whose registration has been

cancelled due to retirement from or cessation of business, or due to changes in or
cessation of status under Section 106(C) of this Code may, within two (2) years
from the date of cancellation, apply for the issuance of a tax credit certificate for
any unused input tax which may be used in payment of his other internal revenue
taxes.
(C) Period within which Refund or Tax Credit of Input Taxes shall
be Made. — In proper cases, the Commissioner shall grant a refund
for creditable input taxes within ninety (90) days81 from the date of submission of

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the official receipts or invoices and other documents82 in support of the application
filed in accordance with Subsection (A) and (B)83 hereof: Provided, That should the
Commissioner find that the grant of refund is not proper, the Commissioner must
state in writing the legal and factual basis for the denial.
In case of full or partial denial of the claim for tax refund, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim, appeal the
decision with the Court of Tax Appeals: Provided, however, That failure on the part
of any official, agent, or employee of the BIR to act on the application within the
ninety (90)-day period shall be punishable under Section 269 of this Code.84
(D) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of
being countersigned by the Chairman, Commission on Audit, the provisions of the
Administrative Code of 1987 to the contrary notwithstanding: Provided, That
refunds under this paragraph shall be subject to post audit by the Commission on
Audit.
- Bakit ka nagkeclaim ng refund?

Balikan natin yung istorya on VAT. In zero rated transactions, Atty Lumbera mentioned
the input VAT is allowed to be credited against output VAT. Eh paano kung wala kang
output VAT? Or if may output VAT pero nag result ka sa excess input VAT.
- period to file a claim for refund:
KIND OF REFUND PERIOD TO FILE A CLAIM FOR PERIOD FOR THE BIR TO MAKE
REFUND BY THE TAXPAYER A DECISION ON THE REFUND
BEING CLAIMED
ZERO RATED SALE/ WITHIN 2 YEARS FROM CLOSE WITHIN 90 DAYS FROM FILING
TRANSACTION OF TAXABLE QUARTER WHEN
THE ZERO RATED
TRANSACTION/SALES HAS
BEEN MADE
CANCELLATION OF VAT WITHIN 2 YEARS FROM THE WITHIN 90 DAYS FROM FILING
REGISTRATION CANCELLATION

Review Lecture
A. ZERO RATED TRANSACTIONS/SALES
*example #1: Let us say na ang zero rated transaction mo ay nangyari Noong Feb 14.
Then meron kang excess input VAT dun sa zero rated transaction na yun.
So you’re using calendar year, dahil quarterly ang bayaran ng VAT, ang 1st Quarter mo
ay from Jan 1 - Mar 31. By the end of March, meron kang P25k na excess input VAT
because of that zero rated transaction you’ve made noong Feb 14.
Paano ka nagfafile for refund? File the administrative claim for refund within 2 years
from close of quarter when the zero rated transaction occurred.
So kelan ngyari yung transaction? Feb 14
Kelan nagend ang quarter? Mar 31. So you count two years from this period.
BIR’S DECISION ON THE TAXPAYER ACTION NEXT ACTION

REFUND
DENIED The taxpayer must file a judicial Whoever is the prejudiced party,
claim for refund with the CTA file an MR in between then go up
Division within 30 days from to the CTA EN BANC within 15
receipt of the BIR’s decision days and then later on, go to the
denying the administrative claim SC within 15 days
for refund.
GRANTED Manahimik ka na
PARTLY DENIED/GRANTED The taxpayer must file a judicial Whoever is the prejudiced party,
claim for refund with the CTA file an MR in between then go up
Division within 30 days from to the CTA EN BANC within 15
receipt of the BIR’s decision days and then later on, go to the
denying the administrative claim SC within 15 days
for refund.
*Take note: The MR is only required if the appeal is from CTA Division papunta ng CTA
en banc. Pero from CTA en banc to the SC, hindi sya sine qua non requirement but you
can file an MR from CTA en banc to the SC because the ROC is applicable in a
suppletorily character to the provisions of the Tax Code and the internal rules in the
CTA.
- nothing follows -

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What are the different types of taxes covered under national taxation?

What are the different types of taxes covered under national taxation?

What are the remedies available for the government and taxpayers regarding tax collection and payment?

What are the remedies available for the government and taxpayers regarding tax collection and payment?

Taxation Law Lecture Atty Rizalina Lumbera Jurists' Online Advance Pre-Bar

Illustration of what Taxation is

(1) National Taxation = covered by NIRC- TRAIN Law

(2) Local Taxation

-> inclusive of the Local Government Code of 1991

ON CASES/JURISPRUDENCE OF TAX: ‘Di masyadong nagdedeviate from the law

RULE ON THE TAX CODE:

(2) In case of exemptions, they are construed against the taxpayers.

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A. First part: TAXES

~> Income Tax

~> Value Added Tax (VAT)

*habang ang tao ay buhay na taxes:

~> Donor’s Tax

~> Percentage Tax

~> Excise Tax = tax on the manufacture, production and importation

~> Estate Tax

(a) VAT + Percentage Tax = Business Tax

B. Second part: REMEDIES

There are two kinds of Remedies for the:

(1) Government against the taxpayers

(2) Taxpayers against the government

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C. BUREAU OF INTERNAL REVENUE RULINGS

(1) Revenue Regulations

(2) Revenue Memorandum Circular

(3) Revenue Memorandum Order

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(1) Ordinary local taxes

-> local taxes indicated in the LGC.

(a) Tax on transfer of real property ownership (Sec 135)

(b) Tax on business of printing and publication (Sec 136)

(c) Franchise tax (Sec 137)

(e) Professional tax (Sec 139)

(f) Amusement tax (Sec 140)

(2) Real Property tax

- Nangongolekta kaya may proseso

(1) Local Government Units (LGU) against taxpayers

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C. Sanggunian Resolutions or Ordinances

Application ng Tax Code sa buhay ng tao:

Basta ikaw ay kumita, meron kaagad na Income Tax consequence.

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A. BASED ON THEIR INCOME

(1) INDIVIDUAL TAXPAYERS (TAO)

(1) Ikaw ay sumusweldo at ‘yon lamang ang pinagkakakitaan mo = Purely

(3) And pinagkakakitaan mo lamang ay ang exercise of your profession = Self

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(2) CORPORATE TAXPAYERS (ALL KINDS OF CORPORATIONS, GENERAL

(1) Engaging in trade or business = Corporate Taxpayer

(2) Kinds of Partnership:

(b) General Co-Partnership = other than GPP

- generally subject to tax, since it is engaged in trade or business.

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B. BASED ON THE TAX CODE