Prelims Tax Transcript

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at the transaction. Anong klaseng

SEPTEMBER 05, 2019 transaction? Kasi iisa lang yan sa Tax
IRIS WEST Code. Although dumadami ang zeros
ng peso value but ang transaction pare-
pareho lang. So ang tatandaan lang ang
TAXATION background na ito.
One of the three (3) inherent powers of the Is also an everyday thing
state together with police power and eminent In fact paggising ninyo may tax. Tulog
domain. or gising kayo may tax component.
Contrary to our misconception that tax
It is exercised by the state through the
is something which is beyond our
legislature (Senate and HOR); always regular daily activities. Ang tax in
legislative in character.
fairness is talagang daily. Lahat ng
ginagawa niyo sa buhay may katapat
Q: How does legislature levy taxes? na tax. Alam niyo kung bakit? Kasi
It is through laws and these laws are being gumagastos kayo. Ang simula niyan ay
implemented by the executive department laging kita kasi kung wala kang kita
through the Bureau of Internal Revenue wala kang gagastusin. At pag may kita
(BIR), Bureau of Customs (BOC) or Tariff ka dapat kang gumastos otherwise
and Custom Duties and of course thru the mamamatay ka. Tama ba? Walang
Local Government Units (LGUs) for local taxpayer na di kumita at hindi
taxes. gumastos kasi kung wala kang kinikita
anong mangyayari sa buhay mo. Tama
The power to levy on: ba? Kung wala kang kinita wala kang
1. Goods gagastusin at kung kapag di gumastos
2. Property ng kinita mo patay ka. Kung may kita
3. Transactions involving goods or ka at di mo ginastos, patay ka. Kasi
property this is daily living. So everytime you
4. Exercise of a right spend you create income for others so
5. Persons that the others will also have to spend.
These are the typical subject matter of You buy goods and buy services
taxation because somebody sells goods and
somebody sells service.
Is always transactional.
Transactional involves two parties.
May isang party at isa pang party then Through the power of taxation, the
may isang subject matter. So lahat ng government raises funds; government levies
tax natin ay may dalawang points of taxes for the purpose of raising funds to
view, Yung sa 2 parties and subject support the needs of the government.
matter. It’s a lot easier to understand Whether baon or pinaghirapan bilang
tax kung magaling kang maghanap ng empleyado, may pinanggalingan kaya
transaction. How do we simplify? No may tax due kasi may kumikita. At
matter how much billions of pesos are kapag kayo naman ay nagspend, may
we talking about we should look only kumikita sainyo. Yan ang cycle ng
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buhay. And everytime that there is In payment of taxes, tandaan din natin
somebody who spends, we have tax yung constitutional and inherent
imposed. Kaya yung tax nangyayari – limitations kasi hindi pwedeng kolekta
Tax multipliers. ng kolekta ang gobyerno. Dapat may
restrictions and parameters. The
Everytime that there is spending or act parameters are found under the
of spending, mayroong tax multipliers. constitutional and inherent limitations
So you can just imagine, everybody is on the power of taxation.
a spender. Pag bumili, binenta mo,
bumili ka and the like. Lahat ng yan
naggegenerate ng tax sa gobyerno kaya Q: Why are taxes important to the
yung tax di natin pwedeng isantabi at government?
mamatay din ang gobyerno pag walang A: Because of the two (2) general principles.
tax kasi yan na lang ang
pinagkakakitaan ng gobyerno sa atin. 1. Necessity Theory – because the
Ang taxes na kinokolekta satin o sa government needs funds to support
taxpayers, yan ay nagiging general itself.
fund ng government.
General fund – out of the budget of the 2. Benefits received theory
government, inaapprove sa konseho, - Parang chicken and egg. Taxes are
kongreso/senado pinipirmahan ni Pres. paid by the citizens para may
Duterte na General Appropriations gagastusin ang gobyerno at ang
Act. Almost 85% of the budget comes gagastusin ng gobyerno ay para
from tax kaya tax is the Lifeblood of ibalik sa mga tao. Kaya yan yung
the government. Kasi lahat ng buwis benefits received theory. But the
na binabayad at kinokolekta, National benefits received by the
Internal Revenue taxes and Tariff and citizens/taxpayers di ba bayad ka ng
Customs Duties, they go to the general buwis forming general fund/public
fund of the government. Tapos yung fund therefore the government
Local taxes, ito naman nagpupunta sa should spend the public funds for
Local Government Unit (LGU) pero public purpose. Ibabalik ulit sa mga
may share yung National Government. tao/taxpayers.
So lahat pag pumunta sa general fund - Mind you, the benefits required to be
of course, this is what we refers to as given back by the government
public funds already. Kaya may because of the taxes paid. Di naman
General Appropriations Act. Ang sabi kailangan directly proportional.
sa Constitution, “public funds for Kung piso ang binayad ko di
public purpose and pursuant to an kailangan piso ang ibalik sakin.
appropriation.” Without an Basic principle yan sa Constitution.
appropriation, hindi pwedeng gastusin
ng gobyerno. These are the two (2) theories why we have
to pay taxes. This is the core of taxation.
Because it is an inherent power of the State,
there are constitutional and inherent THREE CLASSES OF TAXES
limitations. 1. National Internal Revenue taxes
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Basis: National Internal Revenue Code magkatransaction diyan ay si persons 1 and

(NIRC), as amended by the TRAIN 2, maybe in the same place or in different
Law. places. Whether nasa Pilipinas o nasa ibang
bansa. Imagine niyo kung gaano kagulo.
NIRC is supplemented by various BIRD Lahat ng subject matter may bilog. Pag
issuances in the form of: dinrawing mo yan lahat ng subject matter
may kanya-kanyang bilog. At ang mga bilog
a. Revenue Regulations (RR)
na yan, may 2 tao na magkatransaction. So
b. Revenue Memorandum Orders
yung mga (2) parties involved in that subject
(RMO)
matter may be in the same place or in
c. Revenue Memorandum Circulars
different places. So para siyang semilya na
(RMC)
naghahanap ng egg in science. Parang
Plus opinions and rulings. These are naghahabulan sila sa kalawakan pero
done by the BIR pursuant to Section 4 of hahanapin mo yung kapartner mo sa
the NIRC transaction.
2. Tariff and Customs Duties Q: How do we impose and levy tax on

Covered by the Comprehensive these transactions involving that subject
Modernization Tariff Act (CMTA) matter and the parties involved in the
implemented by the BOC. transactions are moving around the
BOC may issue implementing rules and universe or the whole world?
regulations as well. A: So yan ang ating aaralin. Because the
concept of tax, ang isa pang importanteng
3. Local taxes doctrine dito ay yung situs, the location of
Covered by the Local Government Code the tax. Kaya kailangan nakikita niyo or
(LGC) of 1991 implemented by the napipicture ninyo kasi yan ang
Local Government Units (LGUs). pinakatanong. Ano ang situs ng taxation?
Ibig sabihin location/site. Pag nalaman niyo
Now, you can just imagine that in another kung ano yung site malalaman ninyo kung
taxing jurisdiction/another class jurisdiction, sino ang may karapatan maglevy. Kaya
we follow the same rules more or less. importante yung situs. Alin sa buong mundo
These are generic. These are international ang pwedeng mag-impose ng tax? In every
standards. So you can have a subject matter country, mayroong local, may national. Pag
and the subject matter which is subject to tax lumabas ka naman ng bansa, ang tawag
is in the barangay, and the barangay is inside natin ay international taxation. So we have
the city/municipality, the city/municipality local, national and international taxes. Para
is inside the province, the province is the silang nag-aaway-away o naghahabulan.
country. Para siyang dart. Therefore, the Lahat ng subject matter, dalawa ang
subject matter may be covered by all of this personalities ang pina-uusapan. Kung alin
jurisdiction, either local or national. Pero we doon ang maglelevy ng tax everything
are talking about the same transaction and depends on the law. Kung anong applicable
the same subject matter. na batas. Sa Pilipinas, ang applicable ay
National Internal Revenue Code, as
Take note: Personalities involved in a amended by TRAIN Law.
particular transaction are mobile. While it is
true that tax is territorial in character, the
transactions involve in a subject matter, ang
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NATIONAL INTERNAL REVENUE - Madalas ang mga Pilipino mahilig sa

CODE games of chance so para dumami pa
ang salapi, siya ay tataya kaya
Q: Who are taxpayers? mananalo ng PRIZES and
A: WINNINGS.
1. Individual taxpayers - Kung ang property mo na binili or
ginawa (intellectual creation or di
a. Individual working with employer- kaya invention) ay binenta mo sarili
employee relationship are called as mo rin yung property di ba?
Compensation Income Earner (CIE) Pinagkakakitaan mo. Ang usage non
b. Individual engaged in trade or ay kikita ka ng ROYALTIES.
business (t/b) called as Self-employed - Yung Intangible personal property
Individual (SEI) or exercise of (IPP) mo for example shares of
profession (EPP), called as Self- stock. Nung bumili ka peso is
employed Professional (SEP); and converted into different form of asset
Individual who received because you own that shares of
compensation also engaged in trade stock. Kikita ka rin ng DIVIDENDS.
or business and exercising his
profession. Either called as CEI + t/b These are the possibilities when you
or CEI + EPP or called As Mixed spend, either the money is gone or
Income Earner (MIE) meron kang properties.
c. Estate and trusts are treated as Remember bawat bili mo yan nung
individual taxpayers. kumita ka may income tax. Nung
bumili kayo may income tax dahil
2. Corporations may kumita pero di ikaw
For purposes of taxation, taxation covers magbabayad. Once dun sa binili may
partnerships and joint venture kinita ka, bayad ka na naman ng
agreements (JVA). They are treated as buwis,
corporate taxpayers. income tax na naman.
2. Value-added tax and percentage

Q: What are the sources of Revenue? taxes.
A: Dahil kayo ay kumikita, they spend. Ano Habang bumibili ka may nagbebenta.
ang mga pinagkakagastusan? Buyer ka, may seller who sells these
1. Income Tax goods and services in the course of
- Basic needs in life. (Pag bumili ka their trade or business. Therefore,
nito, walang kapalit na asset) may value-added tax (VAT) . di ba
- Bibili ng properties – Real bumili kayo may seller. Sa seller side
properties, tangible personal nung nagbenta sainyo may tax don.
properties or intangible personal If the sale is in the course of trade or
properties (naconvert ang pera mo business, VAT will be paid. Or in
into different forms) lieu thereof percentage tax.
- Kung may sobrang salapi, nilalagay
mo sa Banko. So ang asset mo peso 3. Donor’s Tax
pa rin Kung may sobra ka sa buhay mo,
gusto mo ipamigay dahil napakabait
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mo. Aba’y magbabayad ka na naman In case you are importing goods or

ng tax. Ito ay Donor’s Tax. exporting goods. Whether it is for personal
consumption or pursuant to trade or
4. Excise Tax business, may tax na naman kayong
Remember if your trade or business babayaran. These are Tariff and Customs
is production or manufacturing, may Duties.
kasama pang isang tax, excise tax.
5. Documentary Stamp Tax (DST)

Lahat ng itong transaction na ginawa
mo sa buhay mo may document.
Kaya magbayad ka ng documentary
stamp tax (DST).
6. Estate Tax
Kapag ikaw ay natigok/namatay,
may natira kang properties. Bayad ng
estate tax.
Note: Patay or buhay, tax is consistently

imposed. Pano madidistribute ang Gross
estate mo according to wills and succession?
Whether intestate or testate, may documents
kaya magbabayad na naman ng DST. Patay
or buhay, may document kang ineexecute,
may DST.
These are the internal revenue taxes
These are levied by the national

government. Now, because you are existing
in a LGU, you have a separate set of taxes.
Iba pa yan (internal revenue taxes). Di ba,
kung ikaw ay nagtatrabaho, nasaan ka? Nasa
Pilipinas in particular san sa Pinas? Sa LGU
so you are exercising your profession in the
LGU. Lahat ng yan, t/b, EPP, and the like
ikaw ay nasa loob ng LGU and again that
will be covered by local taxes.
Napakaraming buwis ang binabayaran.
Nagbayad ka ng taxes sa national
government most of these activities will also
be covered by the local taxes. Marami yan.
You will find it under LGC of 1991.
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whichever LGU levies tax ahead

SEPTEMBER 12, 2019 of the others, that is to the
MORTICIA ADDAMS exclusion of the rest.
• Kaya never magkaroon ng

National and Local Taxes pagkakataon talaga na ang isang subject
matter ay tinatax parepareho ng national at
NATIONAL TAXES UNDER TRAIN LAW local kasi bawal yon. Otherwise,
magkakaron tayo ng double taxation. We
1. Income
recognize the impact of double taxation in
2. Estate
the broad sense.
3. Donor’s
4. VAT DOUBLE TAXATION
5. Percentage
6. Excise In the broad sense (indirect duplicate
7. DST double taxation) – same subject matter,
same tax levied by the same taxing
Taxes after death: Estate tax, DST (execute jurisdiction within the same taxing period
docs for the distribution of estate) for the same taxing purpose (duplication).
This is recognized in our system but we also
Taxes while living: Income, VAT,
Percentage, Excise, DST recognize the impact kaya the law itself
provides for remedies to reduce the impact.
*National taxes not in conflict with local Hindi kasi natin pwede iprohibit kasi by the
taxes very nature of tax being imposed and can be
imposed by various jurisdictions, definitely,
Q: Bakit ung national government and ang worst situation ay double taxation in the
LGU hindi nagkakaroon ng pagkakataon
broad sense. The government recognizes the
na same subject matter ay tinatax nilang
lahat? impact na pag may double taxation in the
broad sense, kawawa ang taxpayer. So how
A: Kasi may dalawa tayong theories does the law remedy such situation? Aaralin
(principle of local taxation) : din natin (for every national taxes and local
taxes).
1. Residual Theory – kung ano ang
hindi tinatax ng national, RVL tip: look at table of contents always.
pwedeng iimpose ng local
(residue/tira/latak). Any subject
matter not subjected to the *Income tax – pinka important kasi lahat ng
following taxes imposed by susunod dahil doon. Kung wala kang
national government, the local income, wala ka na nung susunod na
government units may levy. transaction.
2. Rule of Preemption – among
the local government units,
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In the strict sense (direct duplicate double Una, ung nawala nung nireduce at
taxation) – prohibited and unconstitutional pangalawa, ung kakulangan.
in Ph
Q: Saan babawiin ung nawala and

TRAIN LAW
kakulangan?
A:
Income tax, Donor’s tax, Estate tax –
reduced rates from old law na mataas ang VAT: same rate but transactions were
rates reclassified which generated more VAT
Income Tax Excise: lahat ng taxes on the ff:

1. Yosi
Old: 5% - 32% 2. Gasoline
3. Coal
New: 20% - 35%
4. Sweetened beverages
5. Non-essential service
Binabaan in the sense that naka spread out
(beautification na invasive)
ang income. Dati kasi anim lang ang 6. Motor vehicles (ang nag increase
income brackets tapos ang highest na lang ay yung not more than 1M
income bracket is 500,000 and the tax is ung SRP or DRP; high end na
32%. With the new, 8M ang highest, ito ung sasakyan ay bumaba ng halos
35%. Ung 500k nasa pangatlo lang siyang 100%)
income bracket so it will only command
22%. Imagine ung dating 32 naging 22. Before TRAIN law, comparing net cash
every month now versus net cash every
Donor’s Tax month until December 21, 2017, there
definitely more cash now. But the goods
Old: 5% -20%
that a person will buy are more expensive
New: 6% fixed
because of this (VAT, Excise).
Estate Tax • Last year ang daming nagrereklamo

Old: 2%-15% dahil tumaas lahat (all consumer goods
New: 6% fixed demand higher prices) but towards but
towards the third quarter of 2018, unit unti
Binaba ang mga main taxes (IT, DT, ET) so nagsastabilize naman na (plus the fact that
ang collection lumiit, nabwasan pondo ng merong other variables like price of gas in
gobyerno. Sabi ng batas hindi pwede the international market and exchange
bawasan ang pondo ng gobyerno kasi ang rate)
budget requirement tumataas. Every year,
the budget of the government increases. • Exchange rate – last year or early
this year was the highest and fastest
Walang budget sa GAA na bumaba.
increase such that even during the Asian
Bumaba ang tax so dalawa ang irerecover:
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economic Crisis in 1998 (Cory Admin), the

Income Tax
exchange rate never reach the point of 54.
The highest was 52 and it was a gradual
increase. Last year, in a matter of seven • Income tax: Sec. 22-30 of the NIRC
months from 1 dollar is to 48 naging 1 is to
54. Income – anything that flows into the
wealth of the taxpayer or increases the
• Inflation rate: In a span of 6 months, net worth of taxpayer other than the
the inflation rate general average of 2% return capital, regardless if the income is
became 4%, reaching up to 5.4 on the derived from legal or illegal sources, or
average so everybody was worried last
that the income is in kind or in cash.
year.
• You might have received
something but that might not
• But apparently, the DOF predicted
that it will stabilize by the third quarter be considered as income, either
because aside from this program of the because it does not flow into
government (train changes), para ma your wealth or does not
compensate ung mahihirap, binigyan ng increase your net worth.
cash transfer. Madaming social mitigating • Assuming what you receive is
projects ang gobyerno dito sa TRAIN law: income, the next question is: Is
cash transfers (4Ps) and incentives on public it taxable? Because not all
transport (5 peso discount on gasoline). income is subject to tax
• The expectation of the government For the income to be taxable:

here is to collect/generate more taxes. 95%
1. When it is actually or
of taxes generated will form part of the
constructively received
general fund of the government which is
2. It must be realized.
appropriated in the General Appropriations
Act. 3. It must not be exempted by
law.
• In political law, we cannot disburse
public fund without an appropriation. Income Tax – direct tax on the right to
Without the budget being approved by the receive income; always based on one’s
Congress, Senate and signed by the capacity; in accordance with the tax base
President into law, we cannot touch that under the NIRC; it depends on the source of
money. Until such time that the budget is income
approved, we will comply as if we are
using the old appropriations act. Two kinds of Taxpayers
1. Individual taxpayers
a. Resident Citizens (RC)
b. Non-resident Citizens (NRC)
c. Resident Aliens (RA)
d. Non-resident Aliens Engaged
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in Trade or Business (NRA- present abroad and with

ETB) intention to reside therein
e. Non-resident Aliens Not permanently
Engaged in Trade or Business 2. Those who stay abroad as
(NRA-NETB) immigrants
3. Those who earn income from
2. Corporate Taxpayers abroad and their work requires
a. Domestic Corporations (DC) them to be physically present
b. Resident Foreign Corporations there most of the time
(RFC) 4. Seamen
c. Non-resident Foreign 5. Those who return to the
Corporations (NRFC) Philippines during the taxable
year and has intention to reside
INDIVIDUAL TAXPAYERS here permanently
• Does not return yet to the
Resident Citizen (RC) Philippines – non-resident
For purposes of taxation, a resident citizen is citizen
a citizen of the Philippines and who is • Upon return here in the
residing therein. Philippines – resident
citizen
Q: Who are the Filipino citizens? • This is in fact the only time
under the entire Tax Code
A: Those citizens who are defined as such that the taxpayer is
under the Philippine Constitution. classified differently in one
taxable period
Q: Who are residing Filipino citizens?
When you say “resident,” what does it Q: Why is a seaman considered a non-
mean? resident citizen?
A: Those who are physically staying or A: Because he is not residing in the

present in the Philippines or has an intention Philippines but he is also not residing
to reside here permanently, or those who are somewhere else. He is not earning income
absent but has an intention to return thereto, from the Philippines.
In taxation, residence and domicile are used
interchangeably, unlike in Election Law. Resident Alien (RA)
Non-Resident Citizens (NRC) Q: Who is a resident alien?
Q: Who are non-resident citizens? A: One who is not a citizen of the

Philippines but is residing therein, but his
A: Those who are defined under Sec. 22 of domicile is somewhere else.
the NIRC.
1. Those leave the Philippines
and prove to the satisfaction of
the Commissioner the
intention to be physically
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Non-Resident Alien engaged in Trade or

Business (NRAETB) A:
1. If an alien stays here in the
Q: Who is a non-resident alien engaged in Philippines for an aggregate period
trade or business? of 180 days or more for the entire
year
A: A citizen of another country, not residing 2. Principle of Habituality – when an
in the Philippines, but engaging in economic alien enters into contracts or
or commercial activities here in the commercial transactions in the
Philippines. Philippines, on a more or less regular
basis. The concept is repetitive and
Q: What do you mean by “trade or continuing. It does not mean,
business?” however, that in a one single
contract, you are not engaging in a
A: Refers to economic or commercial trade or business.
activities or exercising your profession. 3. Putting up a branch of your business
here in the Philippines
Non-Resident Alien not engaged in Trade 4. Hiring of agents here in the
or Business (NRA-NETB) Philippines
5. Hiring of employees here in the
Q: Who is a non-resident alien not Philippines
engaged in trade or business?
A: A citizen of another country, not residing CORPORATE TAXPAYERS

in the Philippines and who is not entering
into economic or commercial transactions Domestic Corporation (DC)
here in the Philippines.
Q: What is a domestic corporation?
Q: How do we distinguish a non-resident
alien who is engaged in trade or business A: Domestic corporation is an entity created
from one who is not engaged in trade or or organized in the Philippines or under its
business? laws.
A: A NRA-ETB is a citizen of another Foreign Corporation (FC)

country, not residing in the Philippines, but
engaging in economic or commercial Q: What is a foreign corporation?
activities or exercising profession here in the
Philippines. On the other hand, a NRA- A: Foreign corporation is an entity
NETB is citizen of another country, not incorporated in accordance with any law
residing in the Philippines and who is not other than the Philippines or a foreign law.
entering into economic or commercial
transactions or exercising profession here in
the Philippines.
Q: What are the indicators to determine a
non-resident alien is engaged in trade or
business here in the Philippines or not?
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Resident Foreign Corporation (RFC) and exercise of the common

Non-Resident Foreign Corporation profession of the partners and no
(NRFC) part of its income is derived from
trade or business.
Q: How do you distinguish a resident 2. General Co-partnership – any
foreign corporation from a non-resident partnership other than a general
foreign corporation? professional partnership.
A: A resident foreign corporation is a
corporation incorporated in accordance with Sec. 25 (C) (D) (E) of the NIRC
the foreign laws and is engaged in trade or
business in the Philippines. While, a non-
(C) Alien individual employed by regional or area
resident foreign corporation is a corporation
incorporated in accordance with the foreign headquarters and regional operating headquarters
laws and is not engaged in trade or business of multinational companies
in the Philippines. (D) Alien individual employed by offshore banking
units
Q: How do you determine if a foreign
corporation is a resident or a non- (E) Alien individual employed by petroleum service
resident? contractor and subcontractor
A: The following are the indicators that it is

a resident foreign corporation: • These three [Sec 25 (E)] are
1. If it has a branch here in the
working in the Philippines, but they are
Philippines (the branch here is a
NRA-NETB. Their physical situation is
resident foreign corporation)
that they are aliens, they working in
2. There is agent assigned here in the
Philippines these companies and these companies
3. There is hiring of employees here in are in the Philippines. Their work
the Philippines requires them to be physically present
4. Principle of Habituality here but the law classifies them as NRA-
NETB.
Partnerships
Taxability, for purposes of income tax, is
Q: When we speak of partnerships, what dependent on the source of income –
kind of taxpayer are they? within or without the Philippines. And
when we compute income tax, we talk
A: They are corporate
about taxable periods.
Q: What kinds of partnerships do we have
Taxable Periods
for purposes of tax?
1. Calendar year – any 12-month
A:
period beginning from January and
1. General Professional Partnership – ending in December.
is one which is established
2. Fiscal year – any 12-month period
exclusively or solely for the
beginning anytime (beginning in the first
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day of the month, except in January) but • A resident citizen is taxable on all
ending after the 12-month period. income derived from sources within and
without the Philippines. [Sec. 23 (A)]
Q: For an individual, whether engaged in
trade or business or not, what is the When do you say that an income is derived
taxable period? from Philippine sources (income from
sources within the Philippines)? Sec. 42 (A)
A: Calendar year only. Not fiscal year. of the NIRC
For corporations, it may be fiscal year or
1. Interests on bank deposits – the
calendar year.
bank which issued interest is in the
Philippines
SOURCES OF INCOME 2. Other interest-bearing obligations (like

debts, promissory notes, debentures) – if
1. Within the Philippines the debtor is a “resident, corporation or
otherwise”; if the debtor is a resident of the
2. Without the Philippines Philippines
Examples:
Taxpayer Within Without a. Tayong dalawa, nag-utangan.
Creditor and debtor. Ikaw nasa Hong
Individual Kong, ako nasa USA. Sabi mo sa akin,
“Lumbera, pautangin mo ako.” “O sige,
1. RC √ √ pautangin kita. $1, 000, interest is $100.
Papadala ko sa iyo ah, money transfer.
2. NRC √ X “Anong bank account mo?” “Pwede bang
yung bank account ko na lang na nasa
3. RA √ X
Singapore? Doon mo ipadala.” So
4. NRA-ETB √ X pinadala ko sa Singapore. $1,000. Sabi mo,
“Paano kita babayaran?” Sabi ko, “Ah
5. NRA- √ X sige ideposito mo yung $1, 100 (principal +
NETB interest) sa account ko na nasa Paris. I-
money transfer mo don. Wala tayo sa
Pilipinas. Ang mga bangko ay wala sa
Pilipinas. Pero ikaw, a resident citizen, na
Corporate nagbakasyon sa Hong Kong, at ako ay
immigrant sa USA. Nagbayaran tayo
1. DC √ √ ngayon. Within or without?
oWithin
2. RFC √ X
b. Nag-utangan kami, parehong
3. NRFC √ X Pilipino, nasa Pilipinas. “Bayaran mo ako
P1, 100. Friends tayo eh”. “O sige
bayaran ko”, P1, 100. Bakasyon tayo sa
Singapore, sabay. “Uy may pera na ako,
gamitin mo pang-shopping.” Binayaran
Page 7 of 10
3B 2019-2020
StratPlan for Tax 1
kita sa Singapore, P1, 100. Within or 4. Rentals – based where property is

without? located; you can only lease tangible
o Within personal property and real property
o Physically palabas ng Pilipinas
and yet, the law says, within ‘yan, • Lease = sale of service
kasi ang nagbayad, resident.
5. Royalties – based on location of
Debtor is: property
a. Resident citizen – within a. Intellectual creation
b. Non-resident citizen – b. Literary inventions
without c. Musical inventions
c. Resident alien – within
d. Non-resident alien, of 6. Sale of Real Property – based on where
whatever kind – without the property is located
e. Domestic corporation –
within Examples:
f. Resident foreign corporation a. Buyer-seller. You own a property in
– within the Philippines. I am the buyer, ikaw ay
g. Non-resident foreign nasa France, ako ay nasa South Africa.
corporation – without We called up each other. Sabi ko, “Can I
buy your property in the Philippines?”
3. Services – the place where the You are working in Paris; I am working
service was performed/rendered, regardless in South Africa. We agreed over the
of where the payment was made phone. “How do you pay?” “I’ll send
you thru money transfer in your account
Examples: in Paris. Within or without?
a. Here you are working in a BPO. Ang o Within, because the real
kausap mo, nasa India. And the service is property is located in the
rendered here and paid by the foreign Philippines
company from India papunta ng Pilipinas.
Within or without? 7. Sale of Tangible Personal Property –
o Within, because the service based on where it is sold
was rendered and performed here in
the Philippines, regardless of where a. Bought in PH, sold in PH – within
the payment was made. b. Bought in PH, sold in US – without
c. Bought raw materials outside but
b. In the case of seaman, na produced in PH – partly within,
natatrabaho sa labas ng bansa at ang partly without
sweldo ay pinapadala sa pamilya dito sa
Pilipinas. Within or without? Sale of Intangible Personal Property of
o Without, because the service Domestic Corporation (stocks) – always
was performed outside of the within
Philippines, despite the fact that the
salary is paid in the Philippines
Page 8 of 10
3B 2019-2020
StratPlan for Tax 1
8. Dividends Math version:
Examples: • XYZ is a foreign corporation (may

branch sa Pilipinas or walang branch,
a. SMC Corporation, nag-issue ng pero kumita sa Pilipinas). Nagbigay siya
dividends in favor of X. Within or ng P100,000-dividends (meaning kumita
without? siya). Yang lahat ng 100, 000 ay within,
o Within, because the one sabi ng batas. Yung kita niya sa Pilipinas,
which issued the dividends is a whether thru a branch or not thru
domestic corporation, all branch, pag yan ay ibinabalik sa USA na
dividends are from within. It is kumpanya, at yung USA ang magsasabi na
from the point of view of the may kinita kami sa Pilipinas. At yung kita
stockholders, as they are the ay ididistribute mo as dividends. Sa
recipients of dividends. dividends, may element ng kinita sa
Pilipinas. Kaya within. The possibility of
earning income from the Philippines,
b. XYZ is a domestic corporation. It
which forms part of the profits, at yung
issued dividends of 100,000 in favor of
profits ay binigay mong dividends,
stockholder X. Within or without?
because of this element of source of
o Within, because Sec. 42
income within the Philippines, ‘yun ang
says that all dividends issue by a
rason kung bakit yan ay within.
domestic corporation are income
from within.
• Pero sabi rin ng batas, kung
c. What if XYZ is a foreign corporation? tatlong taon bago binigay ang dibidendo,
Within or without? ang kinita sa Pilipinas ni XYZ ay mas
o Within, because, under mababa sa 50% ng suma-tutal na kita,
Sec. 42 (A)(2)(a), dividends from hindi dapat lahat ng 100,00 ay within,
foreign corporations are kaunti lamang.
considered income from within
the Philippines. Example
2016 - nagbigay ng 100, 000

Q: When do we consider dividends as
income without?
A: Sec. 42 (A)(2)(b)
Tagalog version: Subalit kung tatlong taon

bago binigay ang dibidendo, ang kinita sa
Pilipinas ng foreign corporations ay mas
mababa sa 50% ng suma-tutal na kita,
hindi lahat ay within, kaunti lamang.
Page 9 of 10
3B 2019-2020
StratPlan for Tax 1
Kinita sa USA Kinita sa Pilipinas
2015 10M 2M
2014 10M 3M
2013 10M 1M
Sub- 30M 6M
total
Total 36M
36M /2 = 18M
Ang kinita sa Pilipinas (6M) ay mas

mababa sa 50% ng suma-tutal na kita
(36M), hindi lahat ng 100, 000 ay within.
Kaunti lamang.
6/36 x 100,000 = 17, 000 – within
63,000 – without
Page 10 of 10
TAX 1 (ATTY. RIZALINA LUMBERA)
9/26/19
INDIVIDUAL TAXPAYERS
TABLE 1
KINDS OF INCOME AND TAXES

SOURCE OF INCOME CAPITAL
CAPITAL
KINDS OF (Covered by ALL INCOME GAINS FROM
PASSIVE GAINS FROM
TAXPAYERS Section 42 of NIRC) OTHER THAN SALE OF
INCOME SALE OF REAL
(B), (C), (D) SHARES OF
PROPERTY
STOCK
W/IN W/OUT (A) (B) (C) (D)
INDIVIDUALS (including estates and trusts)
RC ✔ ✔ NIT or 8% FWT FWT FWT
NRC ✔ ✖ NIT or 8% FWT FWT FWT
RA ✔ ✖ NIT or 8% FWT FWT FWT
NRAETB ✔ ✖ NIT or 8% FWT FWT FWT
GIT-25%/FT
Special aliens – compensation

NRANETB ✔ ✖ FWT FWT
income and other employee benefits
shall be subject to net income tax
rates (Sec. 25, C,D,E)
RESIDENT CITIZEN
CONCEPT OF NET INCOME TAX
Ang resident citizen ay subject to tax from all sources within and without at schedular. Yang schedular na yan, yan yung NET INCOME
TAX SYSTEM. Ibig sabihin niyan, sa isang taon, pinagsama sama sa isang basket ang lahat ng klase ng income (gross income) tapos
mayroong mga allowable deductions (i.e. authorized deductions which the law provides). The law provides kung ano ang pwedeng i-
deduct to arrive at the taxable net income tapos i-mumultiply sa tax rates under the Net Income Tax System. Yan yung concept.
Gross Income
- Allowable deductions _
Taxable Net Income
x tax rates under Net Income Tax System
Net Income
EXCEPTIONS TO TAX
Makikita niyo under SEC. 24 [A][1][a], may “other than income subject to tax under (B), (C), (D)” eto ang explanation:
As a rule, lahat ng income ay taxable. Etong dalawa lang na to ang hindi tinatax: 1. It is excluded by law; 2. It is exempted.
GOLDEN RULE: KUNG WALA SA (B), (C), (D), NASA (A).
TABLE 2
(SEE: SEC. 24 [B]/[C]/[D])
C D
B
CAPITAL GAINS FROM SALE OF CAPITAL GAINS FROM SALE OF
PASSIVE INCOME
SHARES OF STOCK REAL PROPERTY
Kinds of income: Requisites: Requisites:

1. Currency Bank Deposit 1. Capital gains 1. Real property
2. Royalties 2. Sale of shares of stocks 2. Capital Asset
3. Prizes and Winnings 3. Not listed in the Stock Exchange 3. Located in the Philippines
4. Dividends 4. Domestic Corporation
Requisite:
5. Derived from Philippine sources
3B 2018-2019 STRATPLAN
9/26/19
COLUMN A
Ngayon, kung nasa A ang income, anong tax ang iimpose natin?
There are two. NIT or 8%
TABLE 3
(SEE: SEC. 24 [A])
NET INCOME TAX (NIT) NIT or 8% on gross sales or gross receipts

(hereinafter referred as “OTHERS” for discussion purposes)
CIE – Pag ang tao ay SEP or SEI – Pag ikaw ay Self-Employed Professional (SEP) or Self-Employed Individual
Compensation Income (SEI):
Earner (CIE), ang tax niya ay
NIT lang. WALA SIYANG NOTE: Pag SEI or SEP, ang pinagkakakitaan niya ay TRADE OR BUSINESS (T/B).
CHOICE. Which rates? Yung EXERCISE OF PROFESSION is considered as T/B.
scheduler na yan.
• Pag ang gross sales (GS)/gross receipts (GR) mo DO NOT EXCEED 3 MILLION (i.e.
3 MILLION AND BELOW), this time you have options, either:
a. NIT – it means may allowable deductions pa sila
b. 8% on the Gross Receipts – kung magkano ang kita mo in excess of
P250,000
• Pag ang kita mo ay MORE THAN 3 MILLION – wala kang choice. Ang tax mo ay NIT.
NOTE: “Total Gross Sales and/or Gross Receipts and Other Non-operating Income”
(See: SEC. 24[A][2][B] in relation to SEC. 109[BB])
MIXED INCOME EARNER (MIE)

(also referred as “OTHERS”)
• Compensation Income – ang compensation ko, palaging NIT. Never 8% on the GI.
• Income from T/B –
a. If GR/GS DO NOT EXCEED 3 MILLION – either NIT or 8% on the GR/GS.
b. If GR/GS is EXCEEDS 3 MILLION – NIT only.
For discussion purposes, the term “OTHERS” is used to encompass the applicable tax principle for SEP, SEI or MIE.
Eto yung bago sa TRAIN Law. In the old law, kahit anong pinagkakakitaan mo, lahat yan NIT.
In TRAIN Law, there is segmentation. Pinaghihiwalay ang compensation (sweldo) doon sa T/B.
Reason: Nagrereklamo ang SEP or SEI because they are treated similar to a CIE eh hindi naman sila CIE who is earning his salary.
Your compensation income is always subject to NIT. If your income from trade or business does not exceed 3 million
pesos, you have a choice either to be taxed at 8% of gross receipts or NIT. However, the choice should be signified at the
start of the year when you file your first quarterly return. If you do not choose 8%, the default rate is NIT.
e.g. RVL, a resident citizen
Meron akong sweldo (compensation), binibigay sa akin ng employer ko.

Income? Yes.
Within or without? Within.
Subject to tax? Yes.
What kind of tax? NIT.
Si Lumbera, may law office. Nagbabayad ang mga kliyente ko, kumikita ako WITHOUT an EER. In both instances (prior example) I
am selling service, to my employer and to my clients. The difference is, when I sell service to my employer, it is with a contract
which establishes the EER. I call it COMPENSATION. When I sell service without an EER, I call the income GROSS RECEIPTS.
Income? Yes.
9/26/19

What kind of tax? Others.
May parlor ako sa gilid ng bahay ko. Nag gugupit. Kumita.

Income? Yes.
Naglelecture ako sa eskwelahan, pre-bar, MCLE. Kumikita ako.

Income? Yes.
May pa-jueteng ako na business sa Batangas. Joke lang. Theoretically, I earn.

Income? Yes.
Nagnakaw ako ng 2 million.

Income? Yes.
Si Lumbera, habang nasa States, nag render ng legal services. Kumita ako ng 20,000USD
Income? Yes.
Within or without? Without.
Nag branch ako ng parlor sa States.

Income? Yes.
Habang nasa States, nag lecture ako sa mga abogado doon. Kumita ako ng 10,000USD.
Income? Yes.
Nag benta ako ng cocaine sa States.

Income? Yes.
ILLUSTRATIVE EXAMPLE:
(Income daw ni Atty. RVL)
COMPENSATION (NIT) OTHERS

NIT – if it exceeds 3 million
NIT or 8% on gross receipts – if it does not exceed 3 million
Compensation from EER PHILIPPINES USA

1. Law office 1. Legal office
2. Parlor 2. Parlor
9/26/19
3. Lectures 3. Lectures
4. Jueteng 4. Cocaine
5. Others – shabu
Yan yung Column A. That is how you apply it. In or out, it is Column A.
NIT for sweldo in the Philippines. For all of my other income na wala sa [B], [C] o [D], nasa A – OTHERS.
SIDE NOTE: Kasi I can have so much income, so many types. How do we classify them? You will not be asked about the rates but
you will understand that depende kung saan galling ang income, anong kalseng income, nag iiba ang rate.
COLUMN B
PASSIVE INCOME
If the income is falling under Column B, the tax due is Final Withholding Tax (FWT).
1. INTEREST ON BANK DEPOSITS IN THE PHILIPPINES
I have a bank deposit in BPI Espana. Kumita ng 1000 pesos.

Income? Yes.
What kind of tax? Final Withholding Tax (FWT)
What kind of rate? 20%. See: Sec. 24 [B][1]

Pag may deposit ka sa banko, subject to 20% tax. Pag kumita ka ng 1000, may bawas na 200. 800 nalang. Sa isang column
“Interest Income,” sa isa naming column “Withholding Tax.” And the bank will have to remit the 200 to the BIR.
If I have a dollar account in BPI Espana. Kumita ng interest. 500USD.

Income? Yes.
What kind of tax? FWT.
What kind of rate? 15%. (See: Sec. 24 [B][1])

Iba ang rate pag under Foreign Currency Deposit Act.
NOTE: Dati yan, 7.5%. Under the TRAIN Law, 15% so dumoble.
So nasaan siya? Nasa B, wala sa A.
Meron akong time deposit sa BPI Espana. Hindi ako nag pre-terminate. After 5 years, kumita ako ng 10,000 pesos.
Income? Yes.
Subject to tax? No. Exempt. (See: Sec. 24 [B][1])
Kung ako ay nag pre-terminate on the 4th year. Is it exempted? Anong tax? Anong rate?
Not exempted. FWT. 5%.
Pag nag pre-terminate ako on the 3rd year?

FWT. 12%.
Pag nag pre-terminate ako before the 3rd?

Back to basic tax na 20%.
Reason for the progressive rates on time deposits: Pag hindi mo winiwithdraw ang salapi mo, napapaikot sa ekonomiya ng bansang
Piipinas ng limang taon at napapakita ng gobyerno. Dahil ganon, may benefit ang gobyerno. “Salamat ineng, bibigyan kita ng
libreng tax. Pero pag apat na taon mo lang pinagamit, hindi libre. May tax pero maliit lang a 5%. Pag tatlong taon, mas mataas ng
konti, 12%. Pero kung taong taon lang, ah wala na. Sorry, tax na kita. Full tax ka.”
NOTE: Pero pag one year ang term, ni-renew mo ng 1 year, ni-renew ng 1 year, ni-renew mo ng 1 year, kahit sampung taon
mo pa ni-renew, lahat ng yan, taxable. The original period must be 5 years at hindi mo winiwithdraw.
9/26/19
Si Lumbera, sa USA, meron akong dollar account. Dun kumita ako ng interest na 1000USD.
Income? Yes.
What kind of tax? Others. (Nasa B ba? Ano ang nasa B? Interest derived from Philippine deposits. So nasa B ba? WALA. So saan?
NASA A. Ano sa A? OTHERS.)
Nag deposit ako sa US Bank. Hindi ako nag pre-terminate. 5 years. Kumita ang aking dollar account ng 20000USD.
Income? Yes.
Within or without? Without
Subject to tax? YES. Hindi na exempted. Yung exemption applicable lang sa Peso account.
2. PRIZES AND WINNINGS
Nagpa-raffle dito. Nanalo. 9,999.99 pesos.

Income? Yes.
Subject to tax? YES. NOT EXEMPTED. Subject to tax under Subsection A of Section 24.
What kind of tax? NIT. Others.
Exact na 10,000 na pinanalunan ko dito.

Income? Yes.
What kind of tax? Others. (Kasi sabi 10,000 OR LESS)
10,001 pesos.
Anong tax? FWT nasa B. 20%
Nasa States ako. May nagpa-raffle. 9,999.99 pesos, nanalo ako. Merong isang 10,000 pesos, nanalo ako. Merong 10,001 pesos,
nanalo ako.
Within or without? Without. (Resident citizen! Naka check!)
What kind of tax? Others. (Wala sa B, nasa A)
Lotto. 9,999.99 pesos.

Income? Yes.
Subject to tax? NO. EXEMPT.
Lotto. 10,000 pesos.

Subject to tax? NO. EXEMPT.
Lotto. 10,001 pesos.

What kind of tax? FWT. 20%.
Nanalo ako sa lotto sa States. 1 MILLION USD.

Income? Yes.
3. ROYALTIES
May libro akong pinublish sa Pilipinas. Binili niyong lahat. Therefore, nag royalties ako.
Income? Yes.
9/26/19
Yung libro ko na yan pinublish sa States. Binenta doon. Nag royalties ako.
Income? Yes.
4. DIVIDENDS (FAVORITE DAW NI MA’AM)
Ang example last time ay 100,000 pesos ang dividends. So si Lumbera, may stocks sa domestic corporation, San Miguel
Corporation. Nag issue ng dividends. 100,000 pesos.
Income? Yes.
Anong column? B.
Anong rate? 10%.
Si Lumbera, may shares of stocks sa foreign corporation. Nag issue ng dividends. 100,000 pesos.
Income? Yes.
Within or without? Within. (Basahin daw ang SEC. 42! Sabi ng batas, IN)
What kind of tax? A – OTHERS. (Wala sa B, nasa A. Bakit, anong nasa B? Issued by domestic corporations. Para di kayo
mahirapan, nandon ang corporation, nasa bintana [literal na bintana], nag bigay ng dibidendo, gagawin mong withholding tax agent
si corporation? We cannot require ang nasa labas ng Pilipinas na maging withholding tax agent natin. Using that as premise,
alangan naman sabihin mong, “remit kayo sa amin ha?” eh kayo din, mag remit sa akin.)
Pag inissue ng foreign corporation, if the exception to the rule applies, tatlong taon, bago binigay ang dibidendo, ang kinita sa
Pilipinas ay mas mababa sa singwento porsyento ng sumatutal na kita, hindi daw lahat ng 100,000 na kinita ay within. Kaunti
lamang. Sa example natin noon: 17,000 ang within. 83,000 ang without.
If you are a RC, are both subject to tax? Yes.
Anong tax sa 17,000? Others.
Anong tax sa 83,000? Others. (Bakit? Wala sa B, nasa A kasi issued by a foreign corporation. Ang nasa B, inissue ng domestic)
TATANDAAN, PAG WALA SA B, NASA A. ANG NASA B AY:

1. Interest on bank deposits issued by banks in the Philippines.
2. Prizes and winnings issued in the Philippines.
3. Royalties from Philippines.
4. Dividends issued by domestic corporation.
PAG WALA SA APAT, IBIG SABIHIN WALA SA B. PAG WALA SA B, NASA A. NASA OTHERS.
COLUMN C and D
Yung C at D, parehong FWT. (See TABLE 1)
Ang C is Capital Gains on Shares of Stocks. Ang D Capital Gains on Sale of Real Property.
CAPITAL ASSET vs. ORDINARY ASSET
Here is the technique: here, we’re talking about assets. One is intangible (Column D), the other one is real property (Column D).
Pag nakakita kayo ng problem sa tax na involving sa assets:
First, you classify them whether they are capital or ordinary.

How do we classify these assets? You will find the answer in SECTION 39. THIS SHOULD BE MEMORIZED! THE FIRST
PARAGRAPH, INCLUDING COMMA AND OTHER PUNCTUATION MARKS.
CAPITAL ASSETS. — The term 'capital assets' means property held by the taxpayer (whether or not connected with his trade
or business), but does not include 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.
9/26/19
CAPITAL ASSETS is defined using ORDINARY ASSETS. It’s in the negative. Lahat ng nakalista, ordinary. Pag hindi nakalista,
capital. The definition of capital asset is in the negative. Any asset other than ordinary asset is capital.
So what are the ordinary assets so that you will know the capital?
Pag sinabing CAPITAL, di ginagamit sa T/B. Pag sinabing ORDINARY, ginagamit sa T/B.
CAPITAL – non-business related assets
ORDINARY – business related assets
e.g. UST is engaged in T/B.

Electric fan, lights, aircon, wall clock, lights – Ordinary
e.g. sa bahay niyo

Electric fan, lights, aircon, wall clock, lights – Capital
The classification of ordinary or capital depends on the holder. Hindi porket capital sa isa, capital na sa lahat. It depends
on the user.
e.g. Nagpaparenta ako as a lessor. Lessee kita.

As to the lessor, the house is ordinary. Business related.
As to the lessee, the house is capital. Non-business related.
If the taxpayer is engaged in real estate business, lahat ng binebenta niyang real properties ay ordinary. Never converted
into capital.
SECTION 39
1. Stocks in trade
Tapsilogan ang business ko. Anong stocks in trade ko?

e.g. tapa, bawang, sibuyas, suka, patis, sili, atsara, itlog, bigas
2. 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
Yan naman yung part ng inventory mo. Kung ilang tapsilog.
3. Property held by the taxpayer primarily for sale in the ordinary course of business or trade.
Real estate ang business ko. Ang ordinary asset ko ay lots.
4. 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.
Kawali, stove, aircon, electric fan, table, chair, kutsra, tinidor, pinggan, tasa, platito, plato. Yan yung mga dinedepreciate.
To determine ordinary assets, you must know the type of business. Nag-iiba iba yan. There is not hard and fast rule. It
depends on your business.
For example, ang suka, hindi pwedeng stocks in trade kung ang inventory ay parlor. Ano yon pangkulot?
5. Real property used in T/B of the taxpayer.
Sa tapsilogan ano yon?

Yung building at yung lupa ng tapsilogan.
Eh kung may bahay ka? Capital.
Kung building ay tinitirahan mo? Capital yan.
9/26/19
Hindi porke’t building ay ordinary na. Hindi porke’t mukhang bahay ay capital. Dapat hanapin mo kung ginagamit ba sa T/B
o hindi.
Student: Paano po pag yung ground floor ay tapsilogan, at yung ibang floors ay tinitirahan?
Atty. RVL: Inaallocate yan. Inaapportion. Kasi sa tax declaration, iniindicate per floor. Kahit terrace at garahe, nakahiwalay
yan. Makikita sa tax declaration kung ilang square meters. Malalaman kung anong floors ang capital at ordinary.
Kapag yung bahay mo ginawa mong business address, hindi na yan capital. Ordinary asset na yan. Forever na yan if it is registered
in the BIR as your business address. Pag binenta mo yan, may VAT.
e.g. sari-sari store sa bahay, head office mo ay bahay – ordinary asset
Kahit sabihin mong doon ka nakatira, hindi naman sinasabing hindi ka jan nakatira. Kelangan lang i-classify. Because there are
different results/consequences if you are using a capital asset or an ordinary asset.
When you’re using whether ordinary or capital asset, and the asset appreciates in value, you do not realize any income.
Neither do you incur any loss upon depreciation. Pag binili mo ng P10,000, ngayon ay P1,000,000 na ang presyo, wala kang
kita. You do not realize any income. Pag bumaba ang presyo, wala ka paring lugi.
Only when you sell the asset will you realize income or loss. You compare the SELLING PRICE with the FAIR MARKET
VALUE for you to determine if you realized income or you incurred a loss.
e.g. Meron akong bahay. P1 million ko binili. Tinitirahan ko.

Tumaas ang fair market value. Meaning sa market tumaas naging P1.5 million.
May income ba ako? Wala.
Pag binenta ko yan ng P1.9 million, may tubo o may lugi?

Tubo. P400,000. (Hindi P900,000)
Binenta ko ng P100,000, tubo o lugi

Lugi. P1.4 million. (Hindi P900,000. Because I could have sold it at P1.5 million but I sold it instead at P100,000)
SECTION 100 (DONOR’S TAX)
Pag kumita ako ng P400,000, income. May income tax. Pag ako ay nagbenta ng lugi ng P100,000 at nalugi ako ng P1.4 million,
walang income. Walang income tax. Ang gobyerno walang kikitain kaya kelangan mag bayad ng DONOR’S TAX. That is in
SECTION 100.
Nag benta ka ng lugi = namimigay ka ng libre = DONOR’S TAX
CONCEPTS TO REMEMBER:
1. When your property is sold not in accordance with its actual money’s worth, then you should pay donor’s tax.
2. There is only one kind of transaction which is not subject to any kind of tax. That is if you give for free in favor of the
government.
3. When the asset appreciates in value, there’s no income. When the asset depreciates in value, there is no loss. But once
you transfer ownership of the asset for a consideration then you will either realize income or incur a loss. If you realize
income, you go to the table of income tax. If you realize a loss, you pay donor’s tax. The donor is the SELLER.
COLUMN C
CAPITAL GAINS FROM SALE OF SHARES OF STOCK
(See: TABLE 2)
NOTE: THE DOMESTIC CORPORATION SHOULD NOT BE LISTED.
I have shares of stocks in San Miguel Corporation (SMC) which I bought for P500,000. The book value increased to P1 million. Not
listed in the stock exchange (e.g. not listed in PSE, Makati Stock Exchange). Now I sell at P1.3 million.
Income? Yes.
How much? P300,000.
9/26/19
What kind of tax? FWT in the nature of Capital Gains Tax (CGT) on sale of shares of stock in a domestic corporation not
listed in the stock exchange.
What rate? 15% (Fixed)
On what? Net capital gain. P300,000.
Si Lumbera may shares of stocks in a domestic corporation, SMC, but this time listed in the stock exchange. P500,000 ko binili, as
listed in the stock exchange. Nabenta ko ng P1.3 million.
Income? Yes.
How much? P300,000.
Do we impose under letter C? No. We impose Stock Transaction Tax under SECTION 127.
What rate? 0.6 of 1% of the gross selling price or gross value in money. In this case, P1.3 million.
REMEMBER:
If listed in the stock exchange – SEC. 127; 15% on net capital gain.
If not listed in the stock exchange – SEC. 24[C]; 0.6 of 1% of the gross selling price or gross value in money.
Not listed. Ibinenta ko ng lugi. P500,000 ko binili. Book value is P1 million. Binenta ko ng P100,000.
Income? No. Therefore, no income tax.
How much is lugi? P900,000.
What kind of tax? Donor’s tax. SECTION 100.
Listed. P500,000 ko binili. Book value is P1 million. The stock exchange price is pababa ng pababa. Volatile ang market. Nabenta
ko nalang ngayon as listed for P100,000.
Income? No. Lugi.
What kind of tax? Under SECTION 127. 0.6 of 1% of the gross selling price (P100,000)
Do I pay Donor’s Tax? No.
BONA FIDE SALE LACKING IN DONATIVE INTENT

An exception to the rule under SECTION 100: “Except a bona fide sale lacking in donative intent”
Requisites for exception:

1. Bona fide sale
2. Lacking in donative intent
e.g. Shares listed in the stock exchange

Here you do not control the price. The market controls the price. Kung bumababa na yung presyo ng shares, ibebenta ko nalang ng
lugi sa P100,000 kesa mawala, dahil baka bukas P30,000 nalang yan. Bona fide sale without donative intent.
Therefore, in case of loss, if the stocks is listed, we apply SECTION 127 without donor’s tax.
e.g. Sa grocery, may mga Buy 1 Take 1 kasi madami pang stocks pero malapit na mag-expire. So ang choice ko ay ipa-ubos o
malugi ng wala na. For example, ang puhunan ko sa Maling ay P15. Madami pa akong stocks pero malapit nang mag-expire. Benta
ko ay P20, tubo ko ay P5. Eh mukhang hindi mauubos ayon sa past sales ko. Kesa malugi ako ng P15 bawat isa, gawin ko nalang
na Buy 1 Take 1. So P20 nalang ang dalawa. Ang isa, P10. Ang lugi ko ay P5.
It is sold not in accordance with its money’s worth. It should have been subjected to donors tax. However, it is a bona fide
sale lacking in donative intent. Therefore, there is no donor’s tax under SECTION 100.
Diba meron akong shares of stocks sa foreign corporation. Binili ko ng P1 million. Fair market value is P1.5 million. Nabenta ko ng
P1.8 million.
Income? Yes.
What kind of tax? A– OTHERS. Wala sa C, nasa A. Kasi ang nasa C ay domestic corporation.
COLUMN D
CAPITAL GAINS ON SALE OF REAL PROPERTY LOCATED IN THE PHILIPPINES (CAPITAL ASSET)
(See: SECTION 24 [D] and TABLE 2)
BAHAY SA PILIPINAS BAHAY SA STATES
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REAL PROPERTY – YES REAL PROPERTY – YES

CAPITAL ASSET – YES CAPITAL ASSET – YES
LOCATED IN THE PHILIPPINES – YES NOT LOCATED IN THE PHILIPPINES – NO
TAPSILOGAN SA PILIPINAS TAPSILOGAN SA STATES
REAL PROPERTY – YES REAL PROPERTY – YES

CAPITAL ASSET – NO CAPITAL ASSET – YES
LOCATED IN THE PHILIPPINES – YES LOCATED IN THE PHILIPPINES – NO
All real properties. I bought each one at P1 million. Fair market value now is P1.5 million. I sold each one at P1.8 million.
Tubo o lugi? Tubo.
What kind of tax dito (Bahay sa Pilipinas*)? FWT. *di ko alam kung anong tinuro ni Ma’am so inassume ko nalang L
What rate? 6% of the fair market value (P1.5 million) or the gross selling price (P1.8 million), whichever is higher.
Because in real property there’s another valuation. Zonal valuation. So tatlo yan. Fair market value, gross selling price or
the zonal valuation by the BIR. Whichever is the highest amount. Yun ang basehan ng 6% CGT.
Bahay sa States.
What kind of tax? Wala sa D, so nasa A – OTHERS. (Not located in the Philippines)
Tapsilogan sa States.
Wala sa D. So nasa A – OTHERS. (Not a capital asset; Not located in the Philippines)
Tapsilogan sa Pilipinas.
Wala sa D. So nasa A – OTHERS. (Not a capital asset)
Bahay located in the Philippines. Binenta ko ng P100,000.

Tubo o lugi? Lugi.
Magkano ang lugi? P1.4 million.
What kind of tax? CGT which is 6% of the fair market value (P1.5 million) or the gross selling price (P100,000) or the zonal
valuation, whichever is higher. Tubo o lugi, palaging 6%. NOT DONOR’S TAX. (Di mo pwedeng ilipat sa A. Anong ililipat mo sa
A eh lugi?)
Yung tatlong nasa A – OTHERS. I bought each one at P1 million. Fair market value now is P1.5 million. Binenta ko ng P100,000.
Magkano ang lugi? P1.4 million.
What kind of tax? DONOR’S TAX.
INVOLUNTARY SALE
e.g. EXPROPRIATION PROCEEDINGS
Eto bahay ko, dinaanan ng kalye.

Anong ibabayad sa akin ng gobyerno? Just compensation.
Magkano? Fair market value. P1.5 million.
So I have a property which I bought at P1 million. Fair market value is P1.5 million. Just compensation is P1.5 million.
If I sell involuntarily in favor of the government, the taxpayer is given the option:
a. CGT which is 6% of the fair market value or the gross selling price or the zonal valuation, whichever is higher under
SECTION 24[D]; or
b. Income tax under A – OTHERS
So ano ang pipiliin ko? Syempre yung mas mababang babayaran. Kung ang pipiliin ko ay CGT which is 6% of the fair market value
(P1.5 million) or the gross selling price or the zonal valuation (palaging mababa), whichever is higher, palagi akong magbabayad ng
6% on P1.5 million. Kasi it will be the highest.
But if the taxpayer chooses the other one, at pinili ang NIT, the NIT is a tax on the income. Ang tanong may kita ba? Wala. P1.5
million ang fair market value. Binili ng gobyerno ng P1.5 million. Eh di wala kang kita. SO ZERO TAXABLE. Kasi bawal sabihin sa
batas nap ag nag benta ka sa gobyerno, libre sa buwis. It is taxable but the effect is zero tax.
If you were the taxpayer-seller, what would you do?

Choose NIT. Do not choose 8% on the gross receipts. Magbabayad ka parin ng tax.
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e.g. FORECLOSURE OF MORTGAGE
Pag finoreclose ang mortgage, meron na bang babayaran na CGT? Wala. Ibebenta muna sa auction.
Pag binenta sa auction, may CGT? Wala parin.
It is only after the redemption period expires that there is actual transfer of the property from the mortgagor to the highest
bidder.
Who pays for the CGT? The highest bidder.
When the certificate of sale is registered, there is no CGT yet. When the right of redemption expires, which is counted from
the registration of the certificate of sale, then that’s the time that the CGT is paid. Otherwise, if it is redeemed, there is no
payment of CGT because the transaction is not completed. CGT is imposed only if there is an actual transfer of ownership.
It also covers exchange of properties.

e.g. Si A, taga Quezon City, nagtratrabaho sa Alabang. Si B taga Alabang, nagtratrabaho sa Quezon City. Nag palit kayo. Both of
you are sellers. Both of you have to pay CGT.
As long as there is a transfer of ownership of a property which is a capital asset, then CGT of 6% is imposed.
EXEMPTION FROM 6% CGT
Can I be exempt of the CGT of 6%? YES.
Let’s take the case of the bahay sa Pilipinas. Nag benta. Nag bayad ng 6% CGT of P1.8 million (gross selling price) or P1.5 million
(fair market value) or the zonal valuation which is normally about P900,000, whichever is the highest. So P1.8 million ang pipiliin.
If I sell at a lower cost of P100,000, 6% of which should be imposed – P100,000 (gross selling price), P1.5 million (fair market value)
or P900,000 (zonal value)? Ano ang CGT ko?
Then it is the 6% of P1.5 million because it is the highest. 6% of P1.5 million is P90,000. Ang CGT ko ay P90,000. Tubo o lugi,
bayad ng P90,000.
REQUISITES FOR EXEMPTION FROM 6% CGT:

1. I sell my actual principal residence
2. 30 days from sale, I inform the BIR that I am availing the exemption
3. Within 18 calendar months from the sale of this house, I buy or build another actual principal residence
4. I avail the exemption once every 10 years.
5. The historical cost is determinant of how much shall be exempted or not.
Sa madaling sabi, yung ibinenta ko, papalitan ko ng panibagong bagay kung saan ako titira at either ako ay magpagawa, o bumili.
Ang gagamitin kong proceeds ay yung P1.8 million. I will use the P1.8 million to buy or build another actual principal residence in
lieu of the one I sold. Pag hindi mo nagamit yung P1.8 million na pinagbentahan mo, at ang nagastos mo lamang ay P500,000,
taxable si P1.3 million.
You should buy or build another actual principal residence using the proceeds from the first sale.
Reason: Sa Pilipinas, napakahirap magpalit palit ng bahay. Here, we give premium to those who sell their house to buy; as long as
you are not engaged in the business of buying and selling. If you are engaged in the business of buying and selling, you are not
subject to CGT, you are subject to income tax under COLUMN A.
REMEMBER:
1. You need a certification from the barangay that that is your actual principal residence
2. Condominium units are considered as actual principal residence
3. If you own both the house and lot, the CGT will be applicable to both the house and the land. However, the exemption is
applicable only to the house. If you own the lot, and I own the house, only the owner of the house can avail of the
exemption. The land cannot be exempted. Una, hindi kasali ang lupa sa exemption. Pangalawa, hindi naman siya nakatira
sa bahay. (Side note: syempre hindi pwedeng mag benta ng bahay ng walang consent si landowner, pero W/N gusto ng may ari ng
bahay na ibenta, pag nag benta yung may ari ng lupa, wala siyang magagawa kasi accessory siya)
Lahat tayo magkakapatid. Bunso ako. Lumaki tayo sa probinsya. Ang laki ng lupa natin. May malaki tayong ancestral house. Lahat
kayo nagsipag-asawa, nagkahiwalay-hiwalay. Naiwanan ako kay Mommy at Daddy kasi ako yung bunso. Dinadalaw niyo nalang.
Pag namatay si Mommy at Daddy kanino ang bahay at lupa? Sa atin lahat. We are co-owners of the land and the house. We inherit
equally unless our mother and father gave it to me. However, he cannot give it to me in full dahil bawal sa legitime.
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We agreed to sell the house and lot. Who among us can claim the exemption?
Only me because that it my actual principal residence.
Can I claim in full?

No. Only up to the extent of my share in the inheritance because I do not own everything. None of you can claim the exemption
because that is not your actual principal residence.
Can you have several actual principal residence?

Never. Isa lang ang pwede kahit madami kang bahay at tinutulugan mo.
What is the definition of ACTUAL PRINCIPAL RESIDENCE?

The place where, though one is absent, he has the intention of returning to. Like the concept of domicile.
ALWAYS REMEMBER: PAG WALA SA B, WALA SA C, WALA SA D, NASA A.
NON-RESIDENT CITIZEN
Ako ay Pilipino, pero wala ako sa Pilipinas.

Kung alam niyo yang resident citizen, napakadali ng non-resident citizen.
A B (Interests on B (Prizes and B (Royalties) B (Dividends) C D

bank deposits) Winnings)
NIT or 8% FWT FWT FWT FWT FWT FWT
COLUMN A
e.g. IMMIGRANT SA STATES
So nandoon ako sa States, pero nag nenegosyo ako dito sa Pilipinas. Sabi ng batas, lahat ng kita ko States ay no tax. Ang taxable
lang yung nasa Pilipinas.
Si Lumbera immigrant sa States. Nurse. Kumikita ako sa States. Sweldo.

Income? Yes.
Within or without? Out.
Subject to tax? NO.
Si Lumbera may parlor sa States. Kumita.

Subject to tax? NO.
May lecture ako sa States.

NOT SUBJECT TO TAX.
Nag benta ako ng cocaine sa States.

NOT SUBJECT TO TAX.
Nag nakaw ako sa States.

NOT SUBJECT TO TAX.
Yan yung column A. But, lahat ng kita ko sa Pilipinas ay taxable.
Meron akong law office sa Pilipinas na mina-manage ng kapatid ko. Kumita.

Income? Yes.
What kind of tax? NIT or 8%.
Kita ko sa Pilipinas sa parlor.

Income? Yes.
What kind of tax? Others. (NIT or 8%)
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Nag lecture ako sa Pilipinas.

A – OTHERS.
Nagpa-jueteng ako sa PIlipinas.

A – OTHERS.
Nag benta ako ng shabu sa Pilipinas.

A – OTHERS.
Madali lang daw ang NRC kasi kalahati lang ang taxable.
COLUMN B
PASSIVE INCOME
1. INTEREST ON BANK DEPOSITS
Interest ko sa bank deposit sa Espana. Peso account.

Dollar account sa BPI Espana.

What kind of tax? FWT. 15%. (1:52:13)
Long term deposit not pre-terminated at BPI Espana.

Exempt if not pre-terminate before the 5th year.
Bank deposit ko sa States. Kahit ano.

NOT TAXABLE.
2. PRIZES AND WINNINGS
P9,999.99 raffle draw dito sa Pilipinas.

What kind of tax? Under column A – OTHERS.
P10,000 raffle draw dito sa Pilipinas

What kind of tax? Under column A – OTHERS.
P10,001 raffle draw dito sa Pilipinas

Lotto. P10,000 and below.

EXEMPT.
Lotto. P11,000.
FWT. 20%
Nasa States ako ngayon. Nanalo ako kahit magkano sa raffle.

NOT TAXABLE.
3. ROYALTIES
Libro na dinistribute sa Pilipinas. Kumita ako ng royalties.

What rate? 10%
Same book. Distributed sa States.

Subject to tax? NO.
4. DIVIDENDS
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Si Lumbera na NRC na nasa States tumanggap ng P100,000 dividends from domestic corporation.
Income? Yes.
What kind of tax? FWT. 10%
Si Lumbera na NRC na nasa States. Meron akong shares of stocks ng foreign corporation. Nag issue ng dividends.
Income? Yes.
Within or without? WITHIN. SECTION 42.
What kind of tax? A – OTHERS.
IF THE EXCEPTION TO THE RULE APPLIES:

e.g. P100,000 is the income. Within is P17,000. Without is P83,000. Therefore, look at TABLE 1.
P87,000 is without. Is it taxable? NO.
Yung P17,000, is it subject to tax? YES. May check sa “NRC – Within”

What kind of tax? A – OTHERS. (WALA SA B, NASA A) See: SECTION 24 [B][2]
COLUMN C
CAPITAL GAINS FROM SALE OF SHARES OF STOCKS
Immigrant ako sa States. Binenta ko yung shares of stocks ko from a domestic corporation, San Miguel Corporation. Kumita ako ng
P300,000.
Income? Yes.
What kind of tax? FWT. 15%
Binenta ko yung shares of stocks ko sa US sa foreign corporation.

Subject to tax? NO. Kasi without.
Kanina pag dividends, depende. Pero pag binenta ko na ay shares ng domestic corporation, lahat yan ay within. Pag binenta ko
ang shares ng foreign corporation, lahat yan ay without. Pag benenta ko ang shares ng foreign corporation, lahat yan ay without.
Pag binenta ko yon, NO TAX.
COLUMN D
CAPITAL GAINS FROM SALE OF REAL PROPERTY
BAHAY SA PILIPINAS BAHAY SA STATES

PARLOR SA PILIPINAS PARLOR SA STATES
Non-resident citizen. Binenta ko ng P1.8 million lahat. Fair market value is P1.5 million.
Tubo o lugi? Tubo.
Bahay sa Pilipinas.
What rate? 6% CGT.
Bahay sa States. NO TAX.
Parlor sa Pilipinas.
What kind of tax? A – OTHERS. (WALA SA D, NASA A)
Parlor sa States.
NO TAX.
Can I claim for the exemption from 6% CGT?

YES. Because the actual principal residence is the place where, though I am absent, I have the intention of returning to. That refers
to my domicile and this (Bahay sa Pilipinas) is my domicile. Therefore I can claim 6% CGT.
REMEMBER: ACTUAL PRINCIPAL RESIDENCE is defined as the place where, though one is absent, he has the intention of
returning to. It does not require continuous, uninterrupted stay because it may be interrupted due to work, studies or
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similar circumstances. Therefore even if I were a non-resident citizen, this (bahay sa Pilipinas) can qualify as my actual
principal residence.
RESIDENT ALIEN
Ako ay nasa Pilipinas. Ang bansa at domicile ko ay hindi rito.

NIT or 8% FWT FWT FWT FWT FWT FWT
NRC and RA are taxed the same. Parehong pareho.
Can I claim for the exemption of CGT of 6%?

NO. Because he cannot own real properties in the Philippines.
Is this an absolute rule? NO.

e.g. Si Lumbera, ang magulang ay nag migrate sa States. Ganitong ganito ang itsura ko. Slang lang ako. Doon ako pinanganak.
Filipino ang lineage ko but I was born in the States. Therefore, I’m an American Citizen. Lahat ng aking Lolo at Lola ay Pilipino.
Paborito akong apo. Pinamahan ako. Ang sabi, “Neng dito ka na. Sayo na itong ancestral house natin.” Inheritance. I can own it.
Somewhere along the way, I decided to reside in the Philippines permanently as a resident alien. Therefore, I stayed in my house.
Who owns the house? ME. That is my actual residence in the Philippines.
Can I sell? Can I buy? Can I build? YES. Hindi ako pwedeng bumili ng lupa pero pwede akong mag tayo ng bahay.
Pwede akong bumili ng condo? YES.
Wala akong lahing Pilipino. Blonde, blue-eyes, maputing-maputi, Caucasian. Nag decide akong tumira sa Pilipinas as a resident
alien. I decided to buy a condo. After three years ng paninirahan, naiinip ako sa mga kanto. Gusto ko bilog. Binenta ko si rectangle,
bumili ako ng bilog? Can I qualify? YES.
NRA-ETB
Hindi nakatira sa Pilipinas. Pero nag-eengage ako ng T/B sa Pilipinas. Kaya hindi pwede dito ang empleyado. Kasi kung empleyado
siya at dito siya na nakatira, eh di resident alien siya.

NIT or 8% FWT FWT FWT 20% FWT FWT FWT
So here, we’re talking about commercial transactions and economic activities. Ang tinatax lang ay yung kinikita niya sa Pilipinas
kahit wala siya.
What kind of tax does he pay?

WE PAY THE SAME KIND. NIT or 8% on GR/GS. The concept is applicable.
The only difference is on the DIVIDENDS. The dividends of the NRA-ETB, the rate is no long 10%. IT BECOMES 20%. That’s
the only difference.
Is the exemption from 6% CGT applicable to a NRA-NETB? YES.
NRA-NETB
Wala sa Pilipinas. Wala pang T/B. But there is a possibility of an economic activity without engaging in T/B. Walang branch, walang
empleyado, walang appointed agent pero pwedeng kumita. It normally happens. So I am treated as an NRA-NETB.
There’s another type. The EXPATS. Those who are employed in offshore banking units (OBU), multinational companies and all
petroleum service contractors. So that’s the second type of NRA-NETB. And the rule is, yung income nila sa A and B, the tax is
on the gross. GIT 25%.
Why is it on the gross?

Simply because wala ako sa PIlipinas, kumikita ako sa Pilipinas, hindi pa ako engaged sa T/B. So kung may kinita ako jan at
nailabas ko at hindi tinatax sa gross, mag habol na kayo ng tambol mayor. Therefore, the requirement is, to ensure the
collection of tax, the tax is on the gross. Final tax.
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So kung sino man ang magbabayad sa akin, bago ako bayaran, naka-tong na yung kita ko. To ensure that tax is paid and collected.
Kasi kung hindi yan itatax, at niremit na sa akin, hindi niyo na ako mahahabol. That is why the tax is on the gross, and the rate is
25% without any deduction. No choice of NIT or 8%. It’s a tax of 25% based on the gross.

GIT 25% FWT FWT
Pag ako NRA-NETB, lahat ng kita ko sa banko, the exemption does not even apply, bayad ng 25% on the gross. Mas Malaki ang
tax.
Now let’s talk about the EXPATS. The second type. Those who are employed in offshore banking units (OBU), multinational
companies and all petroleum service contractors.
SIDE NOTE: Explain ko sa inyo. Diba when you are reading though the TRAIN Law, diba meron pang dates jan na nakalagay?
Yung provisions na yan sa B, C, D, yung mga EXPATS (See: Section 25), pag dumating ng January 1, wala na yang silbi, na-veto
na yan. Nung sinubmit yan sa Presidente, kasama yan.
e.g. Eto yung dating batas, si Jordan ay expat. Ako Pilipino.
Bago ma-hire si Jordan, yung multinational companies na nandito sa Pilipinas (OBU, multinational companies, petroleum service
contractor), nandito yan sa Pilipinas. Dahil kulang ang top-management technical skill Filipinos, sa Labor nagpaalam sa kumpanya.
Maghi-hire kami ng foreigner expat. The company needs certification that there is no Filipino available to do the job or the
Filipinos are not sufficient to do the job for the expat to be hired. Nung na-hire siya, sigurado mataas ang sweldo niya. Di
naman yan pupunta ng Pilipinas ng walang pabahay, etc. Dahil pareho lang tayo ng trabaho, those same privileges are given to me.
Take note that these refers to high top-ranking management positions. Hindi maghihire ng expat para mag hire ng janitor kasi
madaming Pilipino. So hinire siya, hinire ako. Malaki ang sweldo namin. Maniwala kayo sa akin, ang industry rate ay P1 million a
month. We have the same duties and responsibilities, therefore we get paid similarly. Ang tawag sayo ay NRA-NETB. Ang tawag sa
akin ay RC.
OLD LAW
Under the old law, ako nandon sa NIT na 32% ang highest rate; ikaw, GIT 25%. Pag na-compute natin yung tax due, mas mataas
pa yung tax ko kesa sa kanya. So lugi ako.
To remedy the situation under the old law, there is an option given to the Filipino. The company gives an option for the alien to be
taxed at 15%. Once that option is available to her, I can avail of 15% whether or not you avail 15%. The option is given to you. Ang
option mo ay GIT 15% or GIT 25%. As long as the option of GIT 15% is available to you, I can avail as well.
Ano ang pipiliin mo? GIT 15%. Ako anong pipiliin ko? GIT 15%. Pantay tayo. Hindi ka pipili ng GIT 25% kasi mahal. Bibigyan kita ng
option pero hindi nakasulat sa batas na you will be taxed at 15%, I can be taxed at 15%. Bawal yun. I’ll give you the option so
whatever option you have, it will always be beneficial to me. So that way, magpapantay tayo.
TRAIN LAW
Nung TRAIN Law, kung ano ano ang ginawa. If the expat was hired on or before, ibang rate ganon ganon. Pag dating kay President
Digong, VETO! Alin ang na-veto? Yung preferential rate na GIT 15%.
Anong nangyari? Nung na-veto yung preferential rate na GIT 15%, napatanong ka, so ikaw GIT 25%? Ako, babalik lang ako sa NIT
kaso compensation income eh. SAbi ng president, ay hindi. No, no, no, no. When the veto was effected, merong colatilya sabi, ang
expat NIT ka. Wala naman yun sa batas. Nag legislate.
Nung na-cancel, dapat bumalik ka sa GIT 25%, pero no no no no. NIT ka. Yung ang istorya. So ngayon pantay parin kami. Eh di
mas Mabuti pa ni-reclassify mo nalang siya as RC o RA. Tama ba? Ay hindi. Cancel daw. Ay bakit ka naging NIT, napakalayo ng
tinawid. Any law student would be able to answer that when it was cancelled, balik ka sa GIT 25%. Ay hindi daw. NIT ka ha. Kasi
compensation income earner ka, dun ka sa NIT para pareho tayo.
ASSIGNMENT: Nung ginawa kang NIT, yung passive income mo, ano ang tax? GIT 15% or GIT 25%? Codal lang. Wag kayong
mag research ng ibang write up. Kelangan niyong makita sa codal.
COLUMN C and D
Pareho-pareho lang sa C and D. 6% FWT.
If I were a NRA-NETB, can I claim for the exemption from the CGT of 6%?
YES. But limited in application. It is only applicable to expats. For example, those expats who inherited, or bought condo, sold
condo, and bought a new condo.
NOTE: All kinds of individual taxpayers may be exempt from 6% CGT on sale of real property, but limited in application as to
NRANETB.
3B 2019-2020
StratPlan for Tax 1
subject to FWT. At what rate? 20%. All of

OCTOBER 3, 2019
their foreign currency deposits shall be
JASON MENDOZA
subject to 15% FWT.
TAX ON CORPORATIONS Q: If a corporation has long term deposits

that are not pre-terminated for 5 years, is
it subject to tax or is it exempt?
A corporation also has 4 kinds of income.
A: It is taxable. 20 % Final Withholding Tax.
Walang nakasulat na exemption. Ang
Ang difference nito, lahat ng klase ng income
exemption kailangan nakasulat, hindi
of the corporation are presumed to be realized
pwedeng nag pre-presume. Since there is
pursuant to the trade or business. They have
nothing written, the rule that a final
income from trade or business in the
withholding tax at a rate of 20% is applicable.
Philippines and those from columns B, C, and
D.
Q: Rate of tax if a DC realizes royalties
from the PH?
Ang tax due - dito mas madali, kasi walang
A: FWT 20%. Does the 10% rate for literary
choice: NIT 30%.
and musical compositions apply to
corporations? It does not. Imposible naman
A Domestic Corporation (DC), the principal
silang maging composer at tsaka writer kaya
place of business is here in the Philippines,
wala.
tapos pwedeng merong branch sa labas.
Q: Prizes and winnings?
A Resident Foreign Corporation (RFC), yung
A: Hindi mananalo ang isang korporasyon sa
principal place of business sa labas, pero may
game of chance. That’s why it is not there.
branch dito sa Pilipinas. Ang ita-tax lang dito
ay yung kita sa branch.
Q: Dividends?
A: It shall be exempt and it shall be called
Pag Nonresident Foreign Corporation
intercorporate dividends tax.
(NRFC), walang branch sa Pilipinas, pero
kumikita sa Pilipinas.
Q: Sale of shares of stock that are capital
in character not listed in the stock
The NIT is fixed at 30%, unlike sa individual
exchange?
when the income is from the exercise of trade
A: FWT 15%. Same sa individual.
or profession but it is less than 3 million, he
has a choice whether NIT or 8%. Dito (sa
Q: From Real Property (capital) sold?
corporations) wala.
A: FWT 6%. Same sa individual.
If a corporation has bank deposits in BPI

Espana and it realizes income, it shall be
Page 1 of 6
3B 2019-2020
StratPlan for Tax 1
Q: Interest from deposits in foreign banks,

royalties derived abroad, accepted by a 2019: PHP 20 million = kita; PHP 12 million
DC? = puhunan.
A: Income outside the PH. NIT. Wala sa B,
nasa A. Gross income = 8 million
Q: Sale by a DC of RP located outside the Lahat ng allowable deductions sa batas tulad

PH and is not directly used in its ng kuryente, tubig, telepono, renta, salaries,
operations? etc… = PHP 6 million.
A: If a corporation has RP, whether ordinary
or capital, located outside of the PH and it is Gross income - Lahat ng allowable = PHP 2
sold and realizes income it is subject to tax. million. Dito yung 30%. (30% = 600,000).
NIT. Wala sa D, nasa A.
2022 (MCIT begins on the 4th year following
In addition to these types of income, a operations): Gross income = 12 million;
corporation may be held liable for the allowable deductions = 11.7 million;
following: gross - allowable = 300,000.
1. Minimum Corporate Income Tax
(MCIT) - 2% 300,000 * 30% = 90,000
2. Improperly Accumulated Earnings 12,000,000 * 2% = 240,000 - MCIT.
Tax (IAET) - 10%
Whether tubo or lugi, may makukuha. From
MCIT is 2% of the gross income imposed 4th year onwards, MCIT or NIT, whichever
beginning the 4th year following the is higher, na.
commencement of its operations; provided
that the 2% of the gross is higher than the This was introduced in 1997, during the first
NIT of 30%. amendments to the tax code. Before 1997,
napakaraming korporasyon na nag re-reflect
Pag sinabi nating MCIT, ito ay kapalitan ng ng lugi.
NIT or in lieu of. Hindi pwedeng magsama
ang NIT at MCIT. Mamimili ng tax, ano ang IAET
mas mataas, yung 2% ng gross or yung 30% example:
ng net. XYZ Corporation may net income, pag
ipinamigay yung 10% tawag dun dividends.
Gross Income = After the cost of sales or Pag pinamigay yung dividends sa
puhunan. stockholders, may income yung individual.
May tax na 10%.
Example:
Pag pinagdamot nung korporasyon at
Tapsilogan kinamkam yung kita at walang dividends,
Page 2 of 6
3B 2019-2020
StratPlan for Tax 1
balik sa korporasyon yung tax. It is called Q: IAET?

IAET. It is double taxation in a broad sense A: No IAET. But in lieu thereof, may
because there are 2 different subject matters. pangbawi. Yung Branch Profit Remittance
one is on income, the other is sa kadamutan Tax - 15%.
mo.
The branch has the option to remit it outside
Q: Sino ang exempted na corporation sa or to use it in the Philippines. If it is used
IAET? here, mas may pakinabang. Tax creates tax.
A: Publicly held corporations (kasi pera ng More income is produced. This is a deterrent,
gobyerno), banks or non-bank financial pang bawi sa IAET.
intermediaries (required to retain earnings for
depositors, otherwise no deposits could be Meron yang importanteng kondisyon, na
withdrawn), and insurance companies (saan dapat daw sa USA ang tax sa rinemit mo ay
kukuha ng pangbayad sa claims). not less than 15%. Bakit 15? Yun kasi yung
nawawala. Kasi yung NIT natin ay 30. The
government could have earned another 30%
if it was used here in the Philippines.
RESIDENT FOREIGN
CORPORATIONS
Q: Paano kung sa USA ay 18%?
A: Still 15%.
Yung principal place of business, nasa ibang
bansa. It has a branch in the Philippines. It is
Q: 5%?
the branch’s earnings that is taxable.
A: 30%. If in the USA where you remitted, the
tax due is less than 15%, 30% should be
Q: What kind of tax?
imposed. Kasi linoloko mo ako because I
A: NIT 30%. All of its passive income in the
could have earned 30%.
PH shall still be subject to FWT same rates,
but passive income from outside the PH are
not taxable. Sale of shares of stocks not listed
are subject to the same rate of tax. For real NONRESIDENT FOREIGN
properties, they are not subject to the 6% tax CORPORATIONS
because they are not supposed to own real
properties in the Philippines. Principal place of business is outside the PH,
no branch in the PH.
Q: Intercorporate dividends from DC to
RFC? The tax is due on the gross, GIT (Gross
A: Exempt. Income Tax) at the rate of 30%.
Q: MCIT? For capital gains on shares of stock not listed

A: Yes, only on income within the PH. it is the same, capital gains on real property
Page 3 of 6
3B 2019-2020
StratPlan for Tax 1
sold, no as they cannot own real property in benefit of the members such as a fraternal
the Philippines. organization operating under the lodge
system, or mutual aid association or a
Q: Intercorporate dividends tax, does it nonstock corporation organized by
apply? employees providing for the payment of
A: Yes, provided it is DC to NRFC. FWT life, sickness, accident, or other benefits
15%. exclusively to the members of such
society, order, or association, or nonstock
Q: MCIT? corporation or their dependents;
A: No branch here in the Philippines, hence
it is not applicable. Besides, GIT 30% is
(D) Cemetery company owned and
always higher than the NIT kaya the choice is
operated exclusively for the benefit of its
not given.
members;
Q: IAET?
A: NO. (E) Nonstock corporation or association
organized and operated exclusively for
Q: BPRT? religious, charitable, scientific, athletic, or
A: Wala kasi walang branch. cultural purposes, or for the rehabilitation
of veterans, no part of its net income or
asset shall belong to or inures to the benefit
of any member, organizer, officer or any
SECTION 30. Exemptions from Tax on
specific person;
Corporations - The following
organizations shall not be taxed under this
Title in respect to income received by them (F) Business league chamber of commerce,
as such: or board of trade, not organized for profit
and no part of the net income of which
inures to the benefit of any private stock-
(A) Labor, agricultural or horticultural
holder, or individual;
organization not organized principally for
profit;
(G) Civic league or organization not
organized for profit but operated
(B) Mutual savings bank not having a
exclusively for the promotion of social
capital stock represented by shares, and
welfare;
cooperative bank without capital stock
organized and operated for mutual
purposes and without profit; (H) A nonstock and nonprofit educational
institution;
(C) A beneficiary society, order or
association, operating for the exclusive
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3B 2019-2020
StratPlan for Tax 1
(I) Government educational institution; NSNPs have no stockholders, and they are
governed by a Board of Trustees.
(J) Farmers' or other mutual typhoon or fire
These corporations under Section 30 are
insurance company, mutual ditch or
either established for the benefit of the
irrigation company, mutual or cooperative
members or for charitable, religious,
telephone company, or like organization of
educational purposes.
a purely local character, the income of
which consists solely of assessments, dues,
Q: These corporations are exempt from
and fees collected from members for the
what tax?
sole purpose of meeting its expenses; and
A: From taxes under column A, from income
received by them as such, from income
(K) Farmers', fruit growers', or like pursuant to the primary purpose to which
association organized and operated as a each one was created. However, income
sales agent for the purpose of marketing from properties, real or personal, or from any
the products of its members and turning of their activities conducted for profit,
back to them the proceeds of sales, less the regardless of disposition of such income.
necessary selling expenses on the basis of According to the 1987 Constitution:
the quantity of produce finished by them;
ARTICLE 6, Section 28 (3). Charitable
Notwithstanding the provisions in the institutions, churches and personages or
preceding paragraphs, the income of convents appurtenant thereto, mosques,
whatever kind and character of the non-profit cemeteries, and all lands,
foregoing organizations from any of their buildings, and improvements, actually,
properties, real or personal, or from any of directly, and exclusively used for religious,
their activities conducted for profit charitable, or educational purposes shall be
regardless of the disposition made of such exempt from taxation*.
income, shall be subject to tax imposed *Real Property Tax - exempts the land,
under this Code. building, and improvement thereto from
RPT.
All 11 of the listed corporations under Section 30 exempts income received as such,
Section 30 are domestic corporations. They subject to the exceptions from the last
are non-stock, non-profit corporations for paragraph. Exemption is not automatic, it is
different primary purposes. All corporations not constitutionally guaranteed.
are established to realize income, it is just that
its incorporation is either stock or nonstock.
If nonstock, nonprofit; there are no Q: Which among the following are exempt
dividends. No part of its income should from RPT?
redound to the benefit of any of its members.
Page 5 of 6
3B 2019-2020
StratPlan for Tax 1
Jollibee
McDonalds Home for
the Aged
Milk Tea Recreational
Area for
Charitable
Institution
A: Those ADE used by the Charitable

institution. Based on the Constitution and
Section 234 of the Local Government Code
of 1991.
Q: The same home for the aged sells

Christmas cards. Bumenta. Is it taxable?
A: No, as it is income as such, based on
Section 30. It is exempt from NIT.
Q: Income from rentals from the

establishments, is it taxable?
A: Yes, it is subject to income tax (NIT 30%)
under the last paragraph of Section 30.
Q: Income earned from rentals and sales

from Xmas cards were deposited to local
banks and it earned interest. Is it taxable?
A: Yes, it is subject to an FWT 20%.
Q: Income earned from rentals was used

to repaint the building used for charitable
purpose. Is it taxable?
A: Yes, it is subject to tax. Regardless of
disposition.
Page 6 of 6
3B 2019-2020
StratPlan for Tax 1
A: Lahat ng properties except the carpark

OCTOBER 3, 2019
because everything is ADE used for
AINZ OOAL GOWN
educational purpose. Hindi kasama and
Carpark kasi not ADE used for educational
CHARITABLE INSTITUTION purpose.
Q: Ano ang basis?

Non-stock,Non Profit Educational
A: The constitution. Assets, Lands and
Institutions
improvements ADE used for educational
⚫ Sabi sa Constitution (ART. 14,SEC. 4),
purposes shall be exempted from RPT.
all revenues and assets of Non-
(ART 14., SEC.4)
stock,Non Profit Educational
Institutions including all land, buildings
Q:Kapag inapply si (Sec.30,H) on the
and improvements actually, directly and
income, si tuition fee ay ano?
exclusively used for educational
A: Not subject to tax because it is income as
purpose shall be exempted from taxes
such therefore no NIT.
and duties. Under ARTICLE 6, Section
28 (3), real property tax lang ang
Q: Si rental na 5M, taxable?
exemption while this covers all internal
A: Yes, last paragraph of section 30. The
revenue taxes, real property tax and
rate is 30%.
tariff and customs duties. Mas broad
yung exemption. Ang sabi dito , lahat
⚫ Kapag binasa ang consti., it is not the
ng kita,ADE used shall be exempt from
source but the use. As long as na ADE
income tax.
used, no tax
⚫ Sabi ng Constitution,the exemption
⚫ Sa DLSU case, yung parking lot hindi
from income tax is constitutionally
exempt sa RPT because the property is
guaranteed but the exemption from
not ADE used for educational purposes
income tax when it comes to charitable
but the income generated from the
and religious organizations is not
parking lot if used for ADE will be
constitutionally guaranteed because the
exempt.
only basis is the tax code.
Q: How do we determine if the income
⚫ Lets take the case of UST, the school
regardless of the source is ADE used?
hindi yung religious organization na
A: There should be proof. In the absence of
nagmamanage ng eskwelahan. So yung
any proof, it is taxable. You will find that in
school kumikita ng tuition fees, 30M.
the audited financial statement.
Kumikita ng rentals, 5M sa carpark.
⚫ Yung income generated kapag ginamit
sa education libre sa income tax pero di
Q: Ang tanong ay RPT. Alin dyan and
malilibre sa RPT.
exempted sa RPT?
⚫ Sec.30, in so far as educational
institution is concerned is declared
Page 1 of 3
3B 2019-2020
StratPlan for Tax 1
unconstitutional because the exemption

from tax is constitutional guaranteed.
(DLSU CASE) Next lets say UST is GEI. Wala sa consti
yan. Lets imagine UST is a state university.
Q:UST being a PEI, may Q: Alin ang libre sa RPT?

constitutional provision ba? A: Lahat except carpark. Hindi dahil ADE
A:Yes, 2nd paragraph ng Art.14,sec. 4 kundi dahil Sec. 234 of LGC. All real
ng consti. PEI may likewise be exempt properties of the Government of the Phil. are
for taxes and duties if there is specific exempt except when the beneficial use
laws exempting it. pertains to a non exempt entity. The carpark
is not exempt because the beneficial use
Q: Kapag PEI ang ust, alin ang pertains a non exempt entity.
exempted sa RPT?
A: same, except the carpark. The basis NSNPEI PEI GEI
is the LGC of 1991(SEC. 234) RPT ADE ADE Sec 234
used used
Q: Kapag tuition fee income ng PEI?
A: Sec. 27(B), wala sa consti, wala sa Yung UST na public school kumita ng
sec.30. tuition fee 30M at 5M sa rental
Q: Income?
Q: Ano ang tawag sa tuition fee and A: YES
rental income ng PEI? Q: In or out:
A: Related trade or activity at unrelated A: In
trade or activity. Q: Subject to income tax?
A: No
Tuition fee-30M Q:why?
Rental income-5M A: Sec. 30(I). The 30M is AS SUCH. No tax
Total income-35M Q: Pano yung 5M?
50% of income-17.5 A: Taxable. Last paragraph of sec.30
⚫ Ang sabi sa Sec 27(B), kapag ang Q: Among the three who has the best
income from unrelated trade or activity situation as far as tax is concerned?
does not exceed 50% of its total A: NSNPEI, walang tax basta ADE kasi ang
income then the total income shall be gobyerno may obligasyon na pagaralin ang
taxed 10%. In other words kapag PEI kanyang mamamayan ng libre. Hindi niya
lahat taxable, kaya lang pwede ka kayang gawin kaya siya nagpapasalamat sa
magkaroon ng preferential rate na 10%. pribadong sektor na tumutulong sa kanya na
If it is the other way around, yung total magbigay ng quality education. Therefore
itatax NIT 30%
Page 2 of 3
3B 2019-2020
StratPlan for Tax 1
the private is performing its obligation, that's

why law gives incentives.
Q: Why the government is being taxed?

A: it is because the performance of
proprietary function.
CHARITABLE HOSPITAL VS
PROPRIETARY HOSPITAL
⚫ Kapag charitable ang hospital,same lang
din ng charitable institution. Kapag
proprietary ang hospital, ang rule
parang siya PEI, SEC.27(B). We
breakdown the income to related or
unrelated trade or activity. If the income
form unrelated trade or activity does not
exceed 50% of the total then it will be
subject to 10%. If it exceeds 50% of the
total income then it will be subject to
30% tax. (St.Lukes Hosp. Case)
Page 3 of 3
Kinds of Source of Income All income other than B,C,D Passive Income Capital Gains on Capital Gains on Sale of Real
Taxpayers Sale of Shares of Stock Property
Individuals Within Without A B C D
RC ✓ ✓ NIT or 8% FWT FWT FWT
NRC ✓ X NIT or 8% FWT FWT FWT
RA ✓ X NIT or 8% FWT FWT FWT
NRA-ET/ B ✓ X NIT or 8% FWT FWT FWT
NRA- NET/B ✓ X 25% GIT FWT FWT
Special aliens – compensation income and other employee
benefits shall be subject to net income tax rates
(Sec. 25, C,D,E)

Corporation Source of Income All income Passive Capital Capital Inter- Corporate MCIT IAET BPRT
other than Income Gains on Gains on Dividends from DC
B,C,D Sale of Sale of Real
Shares of Property
Stock
Within Without (A) (B) (C) (D)
DC ✓ ✓ NIT FWT FWT FWT Exempt 2% 10% X
RFC ✓ X NIT FWT FWT X Exempt 2% X 15%
NRFC ✓ X 30% GIT/FT FWT X 15% X X X

Tax Exemptions Charitable Institutions Religious Institutions Non-stock non-profit Proprietary Government
of Various - Non-Stock & Non-Profit - Non-Stock & Non-Profit Educational Institution Educational Educational
Institutions NSNPEI Institution Institution
PEI GEI
Real Property Tax EXEMPT: provided ADE used for EXEMPT: provided ADE used for EXEMPT: provided ADE EXEMPT: provided EXEMPT: unless
charitable, religious, educational charitable, religious, educational used for charitable, ADE used for beneficial use pertains
purpose purpose religious, educational charitable, religious, to non- exempt entity
purpose educational purpose for a consideration
Income Tax
1. As such Money received as a charitable Money received from the business of All revenues and assets, SUBJECT TO 10% OR Income as such
institution the church as well as all lands, 30% NIT. - EXEMPT
- EXEMPT (Sec 30, NIRC) - EXEMPT buildings, and If income from UTA
improvements, ADE used does not exceed 50%
for educational purposes of total income, NIT
- EXEMPT of 10%;
2. Income from Income from properties or from if income from UTA Income from
properties or Income from properties or from activity conducted for profit All income from tax if it is exceeds 50% of total properties or from
from activity activity conducted for profit regardless of disposition - NIT (Section ADE used for educational income, NIT of 30% activity conducted for
conducted for regardless of disposition - NIT 30, last paragraph) purposes profit regardless of
profit (Section 30, last paragraph) - EXEMPT (1987 disposition
Constitution) - NIT (Section 30, last
paragraph)
Estate/Donor’s EXEMPT provided that not more than EXEMPT provided that not more than EXEMPT provided that EXEMPT provided EXEMPT (Section 86 &
30% of the gift shall be used by such 30% of the gift shall be used by such not more than 30% of the that not more than 30% 101, NIRC)
institution for administration institution for administration gift shall be used for is used for
purposes. (Sec 87 & 101, NIRC); purposes. (Sec 87 & 101, NIRC); administration purposes. administration
purposes.
(Sec 87 & 101, NIRC);

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3B 2019-2020

StratPlan for Tax 1

at the transaction. Anong klaseng

Basis: National Internal Revenue Code magkatransaction diyan ay si persons 1 and

2. Tariff and Customs Duties Q: How do we impose and levy tax on

NATIONAL INTERNAL REVENUE - Madalas ang mga Pilipino mahilig sa

2. Value-added tax and percentage

mo. Aba’y magbabayad ka na naman In case you are importing goods or

5. Documentary Stamp Tax (DST)

Note: Patay or buhay, tax is consistently

These are the internal revenue taxes

These are levied by the national

whichever LGU levies tax ahead

• Kaya never magkaroon ng

Q: Saan babawiin ung nawala and

Income Tax Excise: lahat ng taxes on the ff:

Estate Tax • Last year ang daming nagrereklamo

economic Crisis in 1998 (Cory Admin), the

• The expectation of the government For the income to be taxable:

in Trade or Business (NRA- present abroad and with

A: Those who are physically staying or A: Because he is not residing in the

Non-Resident Citizens (NRC) Q: Who is a resident alien?

Q: Who are non-resident citizens? A: One who is not a citizen of the

Non-Resident Alien engaged in Trade or

A: A citizen of another country, not residing CORPORATE TAXPAYERS

A: A NRA-ETB is a citizen of another Foreign Corporation (FC)

Resident Foreign Corporation (RFC) and exercise of the common

A: The following are the indicators that it is

SOURCES OF INCOME 2. Other interest-bearing obligations (like

kita sa Singapore, P1, 100. Within or 4. Rentals – based where property is

8. Dividends Math version:

Examples: • XYZ is a foreign corporation (may

2016 - nagbigay ng 100, 000

Tagalog version: Subalit kung tatlong taon

Kinita sa USA Kinita sa Pilipinas

Ang kinita sa Pilipinas (6M) ay mas

6/36 x 100,000 = 17, 000 – within

KINDS OF INCOME AND TAXES

Special aliens – compensation

CONCEPT OF NET INCOME TAX

GOLDEN RULE: KUNG WALA SA (B), (C), (D), NASA (A).

Kinds of income: Requisites: Requisites:

NET INCOME TAX (NIT) NIT or 8% on gross sales or gross receipts

MIXED INCOME EARNER (MIE)

e.g. RVL, a resident citizen

Meron akong sweldo (compensation), binibigay sa akin ng employer ko.

Subject to tax? Yes.

May parlor ako sa gilid ng bahay ko. Nag gugupit. Kumita.

Naglelecture ako sa eskwelahan, pre-bar, MCLE. Kumikita ako.

May pa-jueteng ako na business sa Batangas. Joke lang. Theoretically, I earn.

Nagnakaw ako ng 2 million.

Nag branch ako ng parlor sa States.

Nag benta ako ng cocaine sa States.

COMPENSATION (NIT) OTHERS

Compensation from EER PHILIPPINES USA

1. INTEREST ON BANK DEPOSITS IN THE PHILIPPINES

I have a bank deposit in BPI Espana. Kumita ng 1000 pesos.

What kind of rate? 20%. See: Sec. 24 [B][1]