Tax Notes
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SAN BEDA COLLEGE OF LAW
CRIMSON NOTES Q&A
I.
3. 2oes 2oes the the nonnon-i/ i/p pair/ air/en entt of (ont (ontra ra(t (ts s (la% (la%se se in the the ons onsti tit% t%ti tion on appl appl, , to a p%bli( %tilit, fran(hise! The non-impairment rule does not appl+ to a publ publi# i# util utilit it+ + fran fran#h #his ise e sin# sin#e e a it is sub2e#t to amendment, alteration or repeal b+ ongr ongress ess when when the publi publi# # intere interest st so re3uires 'Art. 455, e#. ((, (68" onstitution*.
GENERAL PROVISIONS
1. Is the the non-p non-profi rofitt sale sale of of Bible Bibles s taable taable! ! No. Taxing non-profit sale of Bibles is a violat violation ion of freedo freedom m of religi religious ous worshi worship. p. Furthermore, RA 8!", whi#h amended the $%AT &aw 'RA ""()* exempted Bibles 'and newspapers* from %AT #overage. ". #hat #hat is the the ete etent nt of the the le$i le$isl slat at%r %re es s po'er to (hoose the s%b)e(t to be tae*! The legislature #an #hoose an+one who #an #an be taxe taxed, d, not not an+t an+thi hing ng that that #an #an be taxed. To illustrate, the manufa#turer of the Bible #an be taxed on his in#ome but the a#t of manu manufa fa#t #tur urin ing g and and sell sellin ing g the the Bibl Bible e #annot be taxed.
0. 2oes the ta ee/ption in the onstit%tion onstit%tion of properties %se* for reli$io%s4 (haritable (haritable an* e*%(atio e*%(ational nal p%rposes p%rposes 5Art. 5Art. VI4 Se(. "67+89 appl, to $ifts! 5n the #ase of Lla*o( :s. o//issioner , o//issioner , the ruled that the onst onstitu itutio tional nal exempt exemption ion appli applies es onl+ onl+ to propert+ tax. 7ifts are sub2e#t to donors tax. 19:$% 19:$%$R $R,, at presen presentt under under Se(. 11 of the ;RP, ;RP , gifts made in favor of religious, #haritable or edu#ational organi;ations would never neverth thel eles ess s 3ual 3ualif if+ + for for dono donors rs gift gift tax tax exemption.
+. An or*i or*ina nan( n(e e 'as pass passe* e* b, the the it, it, of anil anila a 'hi(h 'hi(h i/pos i/pose* e* a per/it per/it fee of P0. P0. on alie aliens ns as a (on* (on*it itio ion n for for e/plo,/ent or en$a$in$ in an, b%siness or o((% o((%pa pati tion on.. 2i* 2i* this this (ons (onsti tit% t%te te a *enial of *%e pro(ess! es. The The poin pointe ted d out out that that alie aliens ns on#e admitted in the /hilippines #annot be deprived of life w0o due pro#ess of law and this this guar guaran anttee in#l in#lud udes es the the mean means s of liveli livelihoo hood d '%il '%illeg legas as vs. 1siu 1siu hion hiong g Tsai /ao*.
SRA13 SRA1384 84 the ruled ruled that a#tual use is ne#essar+. To be exempt,
1
the lands, buildings, and improvements must not onl+ be ex#lusivel+ but also a#tuall+ and dire#tl+ used for religious and #haritable purposes. 5n the #ase of Apostoli( Prefe(t :s. it, ;reas%rer of Ba$%io 7>1 Phil 03>84 the
therein. a.8 Is it s%b)e(t to in(o/e ta! b.8 =o' abo%t per(enta$e 7e(ise8 ta! a. es. 5t is sub2e#t to in#ome tax. The absen#e of flight operations to and from the /hilippines is not determinative of situs of in#ome taxation. The test of taxabilit+ is the
the lands, buildings, and improvements must not onl+ be ex#lusivel+ but also a#tuall+ and dire#tl+ used for religious and #haritable purposes. 5n the #ase of Apostoli( Prefe(t :s. it, ;reas%rer of Ba$%io 7>1 Phil 03>84 the held that * in#ome tax on interest on as? ban deposit loan 'C* real propert+ tax on the football field@ '!* real propert+ tax on the new basetball #ourt simpl+ lent b+ an alumnus@ 'D* in#ome tax on in#ome from the ro# #on#ert held at the football field@ ')* in#ome tax on in#ome from the operation of the #afeteria@ '"* in#ome tax on mone+ re#eived as donation@ '8* in#ome tax on mone+ re#eived as lega#+@ '6* donors tax on its donations and tax treatment thereof for in#ome tax purposes@ '(*%AT on supplies pur#hased to be used in the s#hools operations boos pur#hased to be used at the librar+ edu#ational servi#es
6. #hat is the sit%s of intan$ible propert, for ta p%rposes! An intangible propert+ ma+ have different situs for tax purposes. Thus the following ma+ impose a tax thereon? (. The #ountr+ where the intangible propert+ re#eives prote#tion ' see e#. (! TR/*@ >. The pla#e of domi#ile of the de#edent at the time of his death 'obilia e3uuntur /ersonam* ee :ells Fargo Ban v 5R, " /hil C>D
?. A /an%fa(t%rer has a fa(tor, in Pasi$. It has a sales bro@er 'ho transa(ts b%siness in anila. Is the /an%fa(t%rer s%b)e(t to b%siness ta i/pose* b, the it, of anila! es. The power to lev+ a business 'ex#ise* tax upon the performan#e of an a#t does not depend upon the domi#ile of the person sub2e#t to the ex#ise tax, nor upon the ph+si#al lo#ation of the propert+ taxed, but depends upon the pla#e where the a#t is performed. 'ee Allied Thread o., 5n#. v it+ of anila, (CC RA CC8*
A? an Beda being a non-sto#, non-profit edu#ational institution, 5 will #onsider the following? '(* The tuition fee is not a taxable in#ome pursuant to e#. C'1*TR/@
1. A Ger/an Airline has a ti(@et offi(e in the Philippines b%t 'itho%t an, lan*in$ ri$ht 2
'>* The interest on ban deposit is sub2e#t to >Efinal tax@ on loan is sub2e#t to DC>E in#ome tax@ ee last paragraph of e#. C, TR/@ 'C* The football field is not sub2e#t to real propert+ tax pursuant to e#. >C!&7@
'(*The %AT is imposable on the supplies pur#hased to be used in the s#hools operations 'e#. (D TR/* The sale and importation of boos are transa#tions exempt from %AT under e#. (6+, TR/ 1en#e an Beda is
'>* The interest on ban deposit is sub2e#t to >Efinal tax@ on loan is sub2e#t to DC>E in#ome tax@ ee last paragraph of e#. C, TR/@ 'C* The football field is not sub2e#t to real propert+ tax pursuant to e#. >C!&7@ '!* The basetball #ourt is not sub2e#t to real propert+ tax pursuant to e#. >C! &7 onl+ if an Beda #an prove it is a#tuall+, dire#tl+ and ex#lusivel+ used for edu#ational purposes. ee /rovin#e of Abra v 1ernando, (" RA (!, important in determining its taxabilit+. se, not sour#e, of the propert+ taxable. ee Abra %alle+ ollege, 5n#. v A3uino, ()> RA ()@ 'D* The in#ome from the ro# #on#ert, an unrelated a#tivit+ from the purposes of an Beda, is sub2e#t to D-C>E in#ome tax. An a#tivit+ is unrelated if the #ondu#t of whi#h is not substantiall+ related to the exer#ise or performan#e b+ the s#hool of its primar+ purpose or fun#tion 'e#. >" B, TR/* ')* The in#ome from the operation of #afeteria, a related or an#illar+ a#tivit+ from the purposes of an Beda, is not sub2e#t to in#ome tax. 1owever, if it is operated b+ #on#ession, it is sub2e#t to tax. '"* The donation re#eived is an ex#lusion from gross in#ome 'e#. C>BC, TR/*. 1en#e it is not sub2e#t to in#ome tax. The donation is alread+ sub2e#t to donors tax pa+able b+ the donor 'e#. 68 TR/*. NB? The donor ma+ #laim exemption for the pa+ment of the tax thereon pursuant to e#. ((TR/@ provided, he #an prove that not more than CE of su#h amount shall be used b+ an Beda for administration purposes. An+ in#ome that ma+ be subse3uentl+ re#eived therefrom is sub2e#t to in#ome tax'e#. C>BC, TR/*. '8* The lega#+ is not sub2e#t to in#ome tax. ame as '"*. ee e#s. C>BC, 8!, 8" TR/@ '6* The donation is sub2e#t to donors tax unless an Beda #an #laim exemption under e#. (( TR/. For in#ome tax purposes, an Beda #an #laim the amount donated as dedu#tion from its gross in#ome, in full or in part, under e#. C!1, TR/.
'(*The %AT is imposable on the supplies pur#hased to be used in the s#hools operations 'e#. (D TR/* The sale and importation of boos are transa#tions exempt from %AT under e#. (6+, TR/. 1en#e an Beda is not liable therefore. The edu#ational servi#es of an Beda is not sub2e#t to %AT under e#. (6m, TR/. The following table ma+ help +ou in #orrelating the pertinent TR/ provisions in the above illustration. Gi:er 5n#ome Taxe#. C!1 $state Tax e#. 8!, 8" Gonors Tax e#. 68, (( %AT e#. (D, (6
Re(ei:er e#. C>B'C* N0A N0A same
1+. If it is E see@in$ ,o%r a*:i(e 'ith re$ar* to the abo:e /atters! ame advi#e in the pre#eding problem ex#ept on the in#ome tax treatment of $ as a proprietar+ edu#ational institution. 5t is taxable 2ust lie an+ other domesti# #orporation. 1owever, it ma+ en2o+ a preferential tax treatment'(E on its taxable in#ome* if its gross in#ome from unrelated a#tivit+ does not ex#eed DE of the taxable gross in#ome derived from all sour#es. ee e#. >"B, TR/. Note? ame #onsiderations shall appl+ to religious, #haritable institutions, et#. 13. #hen (an a $rant of ta-in(enti:e be ta@en a'a, b, the $o:ern/ent 'itho%t :iolatin$ the r%le on non-i/pair/ent of (ontra(ts! 5t depends on whether the grant is unilaterall+ or bilaterall+ given b+ the government. 5f unilaterall+ given, there is no impairment. 5t #onstitutes a mere revo#ation of a grant of privilege. 5f bilaterall+ given, there is impairment 'Art. 555, e#. (, onstitution*. E(eption? 5n #ase of grant of fran#hise to publi# utilities when #ommon good so re3uires 'Art. 455, e#. ((, onstitution* 10. =o' are ta la's (onstr%e*! 3
5n #ase of doubt a. Taxation H is #onstrued against the government@ b. Tax exemption H is #onstrued against the taxpa+er. Exception: 5f the exemption is granted to a
No. 5t is not a violation of the Ban e#re#+ &aw be#ause the B5R is not in3uiring the balan#e of the deposit but merel+ atta#hing it without nowing the balan#e of the same.'hina Baning orp. vs. 9rtega*.
5n #ase of doubt a. Taxation H is #onstrued against the government@ b. Tax exemption H is #onstrued against the taxpa+er. Exception: 5f the exemption is granted to a government or religious institution. Note the 5nherent limitation that the government is not sub2e#t to tax.
No. 5t is not a violation of the Ban e#re#+ &aw be#ause the B5R is not in3uiring the balan#e of the deposit but merel+ atta#hing it without nowing the balan#e of the same.'hina Baning orp. vs. 9rtega*. 1?. Is the re:en%e pro*%(in$ a(ti:it, of the $o:ern/ent taable! 5t depends. 5f the a#tivit+ is performed b+ the government in its sovereign #apa#it+ '2ure imperii*, the 7eneral Rule is exemption, the $x#eption is taxation. 'e#. C>, B"b, TR/* 5f the a#tivit+ is performed b+ the government in its proprietar+ #apa#it+ '2ure gestionis*, the 7eneral Rule is taxation, the $x#eption is exemption. 'e#. >", TR/*.
(). =o' are r%lin$s (lassifie*! R%lin$s of first i/pression. H The+ are the rulings, opinions and interpretations of the ommissioner of 5nternal Revenue with respe#t to the provisions of the N5R and other tax laws without established pre#edents. The term in#ludes reversal, modifi#ation or revo#ation of an+ existing ruling. R%lin$s 'ith establishe* pre(e*ents H The+ are mere reiterations of previous rulings, opinions and interpretations of the ommissioner, as delegated to dul+ authori;ed internal revenue offi#ers.
". If a seller a**s to the sellin$ pri(e the ta i/pose* on hi/4 (an a ta-ee/pt p%r(haser (lai/ a ref%n* after pa,in$ for the sa/e! No. The pur#haser paid the additional amount not as a tax but as part of the selling pri#e of the produ#t. The fa#t that a seller added the amount of tax to the pri#e of the produ#t did not mae it a tax on the pur#haser. ee /hil. A#et+lene o. v 5R, > RA (D)
1>. 2istin$%ish prospe(ti:e4 offi(ial4 an* )eopar*, assess/ents. Prospe(ti:e assess/ent informs the taxpa+er of the findings of the examiner who re#ommends a defi#ien#+ assessment. The taxpa+er is usuall+ given ten '(* da+s from noti#e within whi#h to explain his side. Offi(ial assess/ent is issued b+ the B5R in #ase the taxpa+er fails to respond to the proposed assessment, or his explanation is not satisfa#tor+ to the ommissioner, Ceopar*, assess/ent is a delin3uen#+ tax assessment made without the benefit of #omplete or partial investigation b+ an authori;ed revenue offi#er. This is issued when the revenue offi#er finds himself without enough time to #ondu#t an appropriate or thorough examination in view of the impending expiration of the pres#riptive period for issuing a valid assessment. To prevent the issuan#e of a 2eopard+ assessment, the taxpa+er ma+ be re3uired to exe#ute a waiver of the statute of limitations.
"1. In the (ase abo:e4 if the b%,er is spe(ifi(all, ee/pte* fro/ in*ire(t taes4 (an he no' (lai/ a ref%n*! es, if his spe#ifi# exemption from indire#t taxes #ontemplates taxes whi#h, although not imposed upon or paid b+ him dire#tl+, form part of pri#e paid or to be paid b+ him. ee 5R v 7otam#o, and ons , 5n#.,(!8 RA C)@ a#eda v a#araig. "". If the ta is pai* b, the seller b%t passe* on to the b%,er4 'hen (an the seller (lai/ a ref%n* of the ta erroneo%sl, pai* b, the for/er! 5t depends. 5f the tax is imposed dire#tl+ on the thing sold, onl+ the bu+er has the right to #laim a refund. ee edina v it+ of Baguio 'Taxes imposed therein were taxes on the admission ti#ets sold*. 5f the tax is imposed dire#tl+, not on the thing sold, but on the a#t of the seller who is ex#lusivel+ made liable for its timel+ pa+ment, the seller #an #laim a refund and
(8. #hen the BIR $arnishes a tapa,ers ban@ *eposit4 *oes it :iolate the Ban@ Se(re(, La' 7RA 1308! 4
hold the refunded taxes in trust for the bu+ers. ee 5R vs Ameri#an Rubber o. "+. #hen (an a tapa,er (o/pensate his (lai/s a$ainst the $o:ern/ent fro/ his ta liabilit,!
whi#h forms part of the reforestation fund, pa+able b+ it irrespe#tive of whether the area #overed b+ its li#ense is reforested or not*. NB To re#on#ile the above #ases, it ma+ help to refer to the re3uisites of legal
hold the refunded taxes in trust for the bu+ers. ee 5R vs Ameri#an Rubber o.
whi#h forms part of the reforestation fund, pa+able b+ it irrespe#tive of whether the area #overed b+ its li#ense is reforested or not*. NB To re#on#ile the above #ases, it ma+ help to refer to the re3uisites of legal #ompensation under Art. (>"6 ivil ode, spe#ifi#all+? a. That ea#h one of the obligors be bound prin#ipall+, and that he be at the same time a prin#ipal #reditor of the other@ b. That the two debts be due@
"+. #hen (an a tapa,er (o/pensate his (lai/s a$ainst the $o:ern/ent fro/ his ta liabilit,! As a general rule, taxes and debt #annot be #ompensated. An ex#eption is when two obligations are both due and demandable and all the re3uisites of a valid #ompensation 'Art. (>"6 ivil ode* are present. ee Gomingo v 7arlitos, 8 RA !!"'Both the #laim of the government and intestate, the latters #laim had earlier been appropriated b+ a #orresponding law, have alread+ be#ome overdue and demandable as well as full+ li3uidated*.
II.
"3. If the (lai/ of the tapa,er a$ainst the $o:ern/ent has lon$ been pai* an* *eposite* in a ban@ b%t he si/pl, fails to 'ith*ra' it4 (an he (o/pensate it a$ainst his ta liabilit,! No. There is no #ompensation if the parties involved are not #reditors and debtors of ea#h other. ee Fran#ia v 5A, ()> RA "DC'The taxpa+er new that the pa+ment for his #laim had long been deposited to the ban but did not withdraw it. Further, his tax liabilit+ was due to a lo#al government unit while his #laim was against the national government*.
NA;IONAL ;ADA;ION
1. #hen is a sea/an (onsi*ere* an O# for p%rposes of in(o/e ta ee/ption fro/ so%r(es not 'ithin the Philippines! '(* :hen the seaman re#eives #ompensation abroad as a member of the #omplement of a vessel@ and, '>* :hen su#h vessel is engaged ex#lusivel+ in international trade. ".
"0. If the tapa,er is (learl, entitle* to a ta ref%n* altho%$h the IR has not ,et appro:e* the sa/e4 (an he (o/pensate it a$ainst his other ta liabilit,! es. A return filed showing an overpa+ment shall be #onsidered a written #laim for refund 'refer to e#. D8'G* in relation to e#. >!'* TR/*. 5f not +et refunded, it ma+ be dedu#ted from the tax to be paid. ee 5R v 5togon u+o# ines, 5n#., >8 RA 8)"
Is there an i/pres(riptible ta in the ;a o*e! Formerl+ do#umentar+ stamp tax. Now under the TR/, a do#umentar+ stamp tax return is re3uired. Thus, there is no more impres#riptible tax.
+. 2istin$%ish final 'ithhol*in$ ta s,ste/F fro/ the (re*itable 'ithhol*in$ ta s,ste/F per BIR Re:en%e Re$%lations "?6. nder the final withholding tax s+stem, the amount withheld b+ the withholding agent #onstitutes a full and final pa+ment of the tax due from the taxpa+er. Failure of the withholding agent to withhold the #orre#t amount of tax will mae him liable for the defi#ien#+. The taxpa+er is no longer re3uired to file an in#ome tax return. 9n the other hand, under the #reditable withholding tax s+stem, the tax withheld is intended to e3uali;e or at least approximate the tax due of the taxpa+er on his in#ome. The taxpa+er is still re3uired to file an in#ome tax return and pa+ the differen#e between the tax withheld and the tax due.
"> 'The amount paid b+ the li#ensee as reforestation #harges is in the nature of a tax
3. Are (ash an* propert, *i:i*en*s taable! If so4 at 'hat rate! 5
ash and propert+ dividends ma+ either be exempt or taxable depending on whether the re#ipient is an individual or #orporate taxpa+er. The tax rate depends on what t+pe of taxpa+er is the re#ipient. onsider the following summar+ of the
The+ are taxable onl+ if the+ will give sto#holder an interest different from that whi#h his former sto#s represent 'i.e. when the sto#holder is given the option of #hoosing #ash or propert+ instead of sto#s.*. The measure of in#ome in su#h
ash and propert+ dividends ma+ either be exempt or taxable depending on whether the re#ipient is an individual or #orporate taxpa+er. The tax rate depends on what t+pe of taxpa+er is the re#ipient. onsider the following summar+ of the pertinent TR/ provisions?
The+ are taxable onl+ if the+ will give sto#holder an interest different from that whi#h his former sto#s represent 'i.e. when the sto#holder is given the option of #hoosing #ash or propert+ instead of sto#s.*. The measure of in#ome in su#h #ase is the fair maret value of sto#s re#eived. &i3uidating dividends are not taxable to the sto#holder as dividends. The+ are #onsidered as mere return of #apital. But an+ gain or loss sustained b+ him is taxable in#ome or dedu#tible loss.
orporate Taxpa+er a. Foreign to Gomesti# orporation C>E 'e#. C>A* b. Gomesti# to Gomesti# orporation $xempt 'e#. >"G* #. Gomesti# to Foreign orporation Resident Foreign orporation $xempt'e#. >8A"d* Nonresident Foreign orporation (DE sub2e#t to the #ondition stated in e#. >8BDb. 9therwise, C>E
DA>* Nonresident alien not engaged in business and trade >DE on gross in#ome 'e#. >DB* b. From Foreign orporation Resident #iti;en, nonresident #iti;en, resident alien, nonresident alien engaged in business and trade D-C>E 'e#. >!, >DA(* Nonresident alien not engaged in business and trade >DE on gross in#ome 'e#. >DB* NB? 5f a #orporate taxpa+er will not de#lare dividends, it will be sub2e#ted to (E tax on improperl+ a##umulated in#ome 'e#. >6*
+ advi#e depends on who will be the designated benefi#iar+. 5f the designated benefi#iar+ is?
The emplo+ees estate or his heirs '(* /remium pa+mentsThe+ are dedu#tible b+ the emplo+er for in#ome tax purposes as ordinar+ and ne#essar+ expenses 'e#. C!A(*. The+ are not taxable fringe benefits of the offi#er under e#. CC> '>* Amount to be re#eived as return of premiumThe amount is not taxable under e#. C>B>. 5t is #onsidered as a mere return of #apital. 1en#e, not in#ome. 5f the amount to be re#eived is mu#h more than the total amount o f the premiums, the ex#ess amount is a taxable in#ome. 'C* /ro#eeds of life insuran#eThe pro#eeds of life insuran#e poli#+ paid to the heirs or de#edents estate is ex#luded from gross in#ome for in#ome tax purposes under e#. C>B(. 5f su#h pro#eeds are held b+ the insurer under an agreement to pa+ interest thereon, the interest pa+ments shall be in#luded in gross in#ome. For estate tax purposes, if the designated benefi#iar+ is the $state-whether or not revo#able-taxable
0. Are sto(@ *i:i*en*s taable! =o' abo%t li%i*atin$ *i:i*en*s! As a rule, sto# dividends are not taxable. The+ will not result in a #hange in interest of the sto#holder. The+ will result in a new #ost per share whi#h will be used in determining an+ gain or loss upon an+ subse3uent sale of su#h shares.
6
Crd person5f revo#able-taxable 5f irrevo#able-not taxable'e#. 8D$*
The emplo+er '(* /remium pa+ments-
1. Hor estate ta p%rposes4 are the, also taable! es. The+ are taxable in#luding those that are enumerated as ex#lusions from gross in#ome under e#. C>B). E(eption the amount re#eived b+ heirs under
Crd person5f revo#able-taxable 5f irrevo#able-not taxable'e#. 8D$*
1. Hor estate ta p%rposes4 are the, also taable! es. The+ are taxable in#luding those that are enumerated as ex#lusions from gross in#ome under e#. C>B). E(eption the amount re#eived b+ heirs under RA!6(" 'e#. 8)A"*.
The emplo+er '(* /remium pa+mentsThe+ are not dedu#tible b+ the emplo+er for in#ome tax purposes 'e#. C)A!* The+ are not #onsidered f ringe benefits to the offi#er. '(* e#.C>B> '>* e#. C>B( >.
11. =o' 'ill ,o% treat the (ontrib%tions of the e/plo,er to the retire/entpension benefit plan! The #ontributions are dedu#tible b+ the emplo+er for in#ome tax purposes as ordinar+ and ne#essar+ expenses or as pension trusts 'e#. C!A,I*. For the emplo+ee0offi#er, the #ontributions are not taxable fringe benefits.
#hat if the e/plo,er instea* (onsi*ers an a((i*ent or health ins%ran(e 4 'hat 'ill be ,o%r a*:i(e! + advi#e will be the same as in the #ase of life insuran#e poli#+ pa+able to the emplo+ees estate in the pre#eding problem. ee e#. C>B!. :ith regard to the pro#eeds thereof, the amount whi#h #ompensates the offi#er for lost profits is a taxable in#ome.
1".
6. As re$ar*s to his propert, ins%ran(e4 the e/plo,er as@s ,o% on the ta treat/ent of the pre/i%/ pa,/ents an* the pro(ee*s thereof. #hat 'ill be ,o%r a*:i(e! The premium pa+ments are dedu#tible for in#ome tax purposes as ordinar+ and ne#essar+ expenses 'e#. C!A(* The pro#eeds thereof #overing the boo value of the propert+ are not taxable. The+ are #onsidered as a mere return of #apital. The amount in ex#ess of the boo value? 5f to be used in restoring the propert+ not taxable 5f not taxable
Are priJes an* a'ar*s taable as in(o/e! If so4 at 'hat rate! 5t depends. 5f pri;es and awards are given primaril+ in re#ognition of #haritable, #ivi#, artisti#, religious, literar+, edu#ational, s#ientifi# a#hievement 'AR-&$*, the+ are ex#luded from gross in#ome provided the > re3uisites provided under e#. C>B"# are met. 5f pri;es and awards are given in #ases other than the above, the+ are taxable in#ome. 5f the value thereof is more than /hp (,, the pri;es and awards are sub2e#t to >E final tax. 5f /hp (, or less, the+ are sub2e#t to D-C>E in#ome tax.
1+. #hat abo%t the priJes an* a'ar*s $i:en in sports (o/petition! 5t depends. 5f the sports #ompetition is san#tioned b+ the athletes national sports asso#iation, the pri;es and awards are ex#luded from gross in#ome 'e#. C>B"d*. 5f not san#tioned b+ the athletes national sports asso#iation, the pri;es and awards are sub2e#t to in#ome tax. 5f being an athlete is the re#ipients profession, the pri;es and awards are sub2e#t to D-C>E in#ome tax. 5f it is not his profession, the pri;es and awards are sub2e#t to >E final tax if their value is more than /hp (,. 5f /hp (, or less, then the+ are sub2e#t to D-C>E in#ome tax.
?. Are retire/ent benefits4 pensions taable as in(o/e! es. ee e#. C>A. e#. C>B) enumerates the ex#eptions. NB? The amount re#eived b+ an emplo+ee under a reasonable private benefit plan is ex#luded from gross in#ome onl+ if the fund #annot an+more be diverted b+ the emplo+er for other purposes 'e#. C>B)a*. Further, earnings of the trust fund are not sub2e#t to in#ome tax under e#. )B. E(eption-the interest in#ome or +ield from ban deposit or deposit substitute of trust fund is sub2e#t to >E final tax 'e#. >!B,)A*
13. =o' are $ains an* losses treate*! To determine the proper treatment of gains and losses, it is imperative to 7
determine the t+pe of propert+ involved, whether it is an ordinar+ or a #apital asset. ee e#. C6A. 5f it is an ordinar+ asset, the ordinar+ gains and losses are #onsidered in determining in#ome or loss from trade,
Bonds, debentures or other #ertifi#ate of indebtedness 'e#. C>B"g*
in#ome 7ains from their sale, ex#hange, retirement are ex#luded from gross in#ome
determine the t+pe of propert+ involved, whether it is an ordinar+ or a #apital asset. ee e#. C6A. 5f it is an ordinar+ asset, the ordinar+ gains and losses are #onsidered in determining in#ome or loss from trade, business or profession. ee e#s. C>A, C!G. 5f it is a #apital asset, determine further whether or not it is a real propert+ lo#ated in the /hilippines. 5f it is, then it is sub2e#t to #apital gains tax 'ee e#s. >!G, >"GD. ee also e#s. >!, >"G>*. 5f not, the #apital gains and losses are #onsidered in determining the taxable in#ome 'e#. C6*.
Bonds, debentures or other #ertifi#ate of indebtedness 'e#. C>B"g* Real propert+ not lo#ated in the /hils /ersonal propert+ lo#ated in0out the /hils 'in#luding shares of sto# of foreign #orp.* 'e#. C6*
in#ome 7ains from their sale, ex#hange, retirement are ex#luded from gross in#ome apital gains0losses are #onsidered in determining the taxable in#ome
10. Ko%r (lient 'hose ho%se an* lot are bein$ epropriate* b, the $o:ern/ent as@s ,o% 'hether he is still s%b)e(t to ta thereon. #hat 'ill be ,o%r a*:i(e! 1e has two options. 1e ma+ opt to be taxed at )E of the F% or 7/ whi#hever is higher@ he ma+ #onsider the #apital gain0loss thereon in #omputing his taxable in#ome sub2e#t to the normal rate. 5f the sub2e#t propert+ is his prin#ipal residen#e and the pro#eeds of the sale will be utili;ed in a#3uiring or #onstru#ting a new prin#ipal residen#e, he ma+ be exempted from pa+ing the #apital gains tax provided the re3uisites under e#. >!G> are met.
NB?:hile both ordinar+ and #apital gains0losses affe#t the taxable in#ome, distin#tion between them is important under e#. C!1. The D or (E limitation therein is based on in#ome from trade, business or profession without #onsidering the net #apital gains. Further, ordinar+ losses are dedu#tible without limitations 'e#. C!G*@ #apital losses have limitations 'e#. C6*. The following summar+ might help +ou? ;,pe of Asset ;a ;reat/ent 9rdinar+ 'see ! 9rdinar+ t+pes, e#. C6A(, gains0losses are C>* taxable in#ome0dedu#tible losses from business Real /ropert+ lo#. in apital gains tax the /hils.'e#s. >!G, based on F% or >"GD* 7/ whi#hever is higher hares of sto# of apital gains tax domesti# #orp. not based on the net listed and traded #apital gains thru a lo#al sto# ex#hange'e#. >!, >"G>* hares of sto# of to# transa#tion tax domesti# #orp. listed 'per#entage tax* and traded thru a based on the 7/ lo#al sto# ex#hange 'e#. (>"* hares of sto# in a 7ains from mutual fund redemption are #ompan+ 'e#. ex#luded from gross C>B"h* in#ome* Bonds, debentures 7ains from their or other #ertifi#ate of sale, ex#hange, indebtedness 'e#. retirement are C>B"g* ex#luded from gross
1. #hat are the transfer taes %n*er the ;RP! 2is(%ss. The transfer taxes under the TR/ are
5t depends on the t+pe of the propert+ involved and whether there is a full, inade3uate, or no #onsideration at all. 5n #ase of real propert+ lo#ated in the /hilippinesH%ll onsi*eration
A nonresident alien not engaged in business and trade #annot avail of the exemption.
5t depends on the t+pe of the propert+ involved and whether there is a full, inade3uate, or no #onsideration at all. 5n #ase of real propert+ lo#ated in the /hilippinesH%ll onsi*eration The transfer is sub2e#t to #apital gains tax. $state and donors taxes are not appli#able sin#e there are no su##ession and donation 'gratuitous titles* to spea of. No (onsi*eration The transfer is sub2e#t to either estate tax or donors tax. apital gains tax is not appli#able sin#e there is no sale or ex#hange to spea of. Ins%ffi(ient (onsi*eration 5n #ases of transfer in #ontemplation of death, revo#able transfer, transfer under the general power of attorne+, the transfer is sub2e#t to estate tax pursuant to e#. 8D7. 5n an+ other transfer involving real propert+ lo#ated in the /hilippines, the transfer is sub2e#t to #apital gains tax 'NB? the tax is based on the F% or 7/ whi#hever is higher*. A real propert+ sub2e#ted to )E #apital gains tax under e#. >!'G* on sale of real propert+ b+ an individual will no longer be sub2e#ted to Gonors tax on the amount b+ whi#h the F% ex#eeded the #onsideration. :hile not expli#itl+ provided in the TR/ law, it is also deemed that same treatment shall be applied to lands and0or buildings held as #apital assets b+ a #orporate seller and sub2e#ted to the )E #apital gains tax under e#. >"'(*'D*.
1>. #hat are the transfer taes %n*er the ;RP! 2is(%ss. The transfer taxes under the TR/ are as follows? apital $ains ta This is a tax imposed upon #apital gains presumed to have been reali;ed from the sale, ex#hange or other disposition of real propert+ lo#ated in the /hilippines #lassified as #apital asset. This in#ludes pa#to de retro sales and other forms of #onditional sales 'e#. >!G* This is also imposed upon the net #apital gains reali;ed from the sale, ex#hange or other disposition of shares of sto# in a domesti# #orporation not listed and traded through a lo#al sto# ex#hange 'e#. >!*. 5n both #ases, #onsideration is essential. Estate ta This is a tax imposed on the right to transmit propert+ upon the death of the de#edent and on #ertain transfers b+ the de#edent during his lifetime whi#h are made b+ law the e3uivalent of a testamentar+ disposition. ee e#. 8! TR/, Art. ""! ivil ode. Geath of the de#edent is essential. 5n #ase of wills, formal re3uisites must be #omplied with. ee Arts. 8!-8(! ivil ode.
5n #ase of propert+ other than real propert+ lo#ated in the /hilippines#ith (onsi*eration The #orresponding gain or loss is a taxable in#ome or dedu#tible loss for in#ome tax purposes. Further, the transfer is sub2e#t to %AT provided it is in the ordinar+ #ourse of trade or business 'e#. (D*. $state and donors taxes are not appli#able.
2onors ta This is a tax imposed on the transfer b+ a person of the propert+ b+ gift. ee e#. 68 TR/, Art. ">D ivil ode. Gonative intent is essential. Further, the formal re3uisites must also be observed. ee Arts. "!8,"!6 ivil ode. N.B.? There is another ind of transfer tax whi#h is found under the &o#al 7overnment ode '&7* H the tax on transfer of real propert+ ownership imposed b+ provin#es 'e#. (CD, &7*.
No (onsi*eration The transfer is either sub2e#t to estate or donors tax. For in#ome tax purposes, the value of the propert+ ma+ be #laimed as a dedu#tion under e#. C!1. Ins%ffi(ient (onsi*eration 5n #ase of transfer in #ontemplation of death, revo#able transfer, transfer under the general power of attorne+, the transfer is sub2e#t to estate tax pursuant to e#. 8D7. 5n an+ other transfer involving propert+ not a real propert+
16. In (ase of transfer of propert, *%rin$ the lifeti/e of the *e(e*ent4 'hen is s%(h transfer s%b)e(t to (apital $ains ta4 estate ta4 *onors ta! 9
lo#ated in the /hilippines, the transfer is sub2e#t to donors tax under e#. (. 5n #ase there is no donative intent, the #orresponding loss is a dedu#tible loss for in#ome tax purposes.
"1. Are (he(@s a((eptable for the pa,/ent of internal re:en%e taes! he#s pa+able to B5R as pa+ment for taxes are no longer a##eptable beginning a+ (, (66", ex#ept in remote areas where
lo#ated in the /hilippines, the transfer is sub2e#t to donors tax under e#. (. 5n #ase there is no donative intent, the #orresponding loss is a dedu#tible loss for in#ome tax purposes.
"1. Are (he(@s a((eptable for the pa,/ent of internal re:en%e taes! he#s pa+able to B5R as pa+ment for taxes are no longer a##eptable beginning a+ (, (66", ex#ept in remote areas where there are no A##redited Agent Bans. The B5R however a##epts #ashiers or managers #he# 'Rev. Regs. No. )-68*.
The following summar+ might help +ou? apital Gains Estate ;a 2onors ;a ;a :ith Full onsideration e#. >!,G N0A N0A No onsideration N0A e#. 8! e#. 68 5nsuffi#ient onsideration e#. >!G e#. 8D7 e#. (
"". Is (ri/inal a(tion allo'e* as a re/e*, for the (olle(tion of taes! es, but no su#h a#tion #an be filed without the approval of the ommissioner of 5nternal Revenue 'see e#. >>( J >>>, TR/*. The approval ma+ be given b+ the Regional Gire#tor. 'Ar#hes vs. Bellosillo, &>CDC!, a+ (, (6)".*
1?. Hor in(o/e ta p%rposes4 is the res%ltin$ loss fro/ transfer of propert, 7other than real propert, lo(ate* in the Philippines8 for ins%ffi(ient (onsi*eration al'a,s *e*%(tible! No. ee losses whi#h are not dedu#tible under e#. C)B.
III. LOAL ;ADA;ION AN2 REAL PROPER;K ;ADA;ION
". #hen is the $rat%ito%s transfer of propert, *%rin$ the lifeti/e of the *onor s%b)e(t to estate ta! s%b)e(t to *onors ta! The transfer is sub2e#t to estate tax if it #onstitutes a donation mortis #ausa. There is donation mortis #ausa if its effe#tivit+ is dependent on donors death, su#h as? :hen the donor reserves the right to revoe the donation at his pleasure@ :hen the intention of donor is to transfer ownership after his death@ :hen the donor reserves the right to dispose of propert+.
".
1. #hat is the nat%re of a b%siness ta! This is a tax paid for ea#h and ever+ business a#tivit+. A tax on business is distin#t from a tax on the arti#le itself.
The transfer is sub2e#t to donors tax if it #onstitutes a donation inter-vivos, that is when its effe#tivit+ is independent of donors death. NB? Gisposition is different from exe#ution. Gisposition or its taing effe#t does not depend whether the propert+ is delivered during the lifetime or after the death of donor. ee Art. ">6 ivil ode $ffe#tivit+ of donation ma+ be sub2e#t to #ondition0term 'i.e.death*.
#hen (an a lo(al $o:ern/ent %nit i/pose an e(ise ta on the sale transa(tions perfe(te* 'ithin its )%ris*i(tion! 5t depends. a. 5f the sale is perfe#ted and paid for within the 2urisdi#tion of lo#al taxing authorit+ but delivered to the #ustomer outside its 2urisdi#tion, the sale is taxable b+ the lo#al taxing authorit+. Reason Geliver+ to arrier is Geliver+ to Bu+er 'Art. (!>C ivil ode*. ee /hilippine at#h o. v it+ of anila 8( RA 66 b. 5f the sale is perfe#ted within the 2urisdi#tion of lo#al taxing authorit+ but paid and delivered to #ustomer outside its 2urisdi#tion, not taxable b+ lo#al taxing authorit+. Reason Geliver+ to #arrier is not #onsidered deliver+ to bu+er. arrier is merel+ #onsidered as agent of seller. ee hell v uni#ipalit+ of ipo#ot (D /hil. (>)C NB To re#on#ile the above #ases, #he# where the sale is #onsummated 'where pa+ment is made*.
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+. an re$%lar (o%rts en)oin the (olle(tion of lo(al ta! es, sub2e#t to the provisions of Rule D8 of Rules of ourt'/reliminar+ 5n2u#tion*. 3. 2istin$%ish fair /ar@et :al%e7HV8 fro/
IV. ;ARIHH AN2 S;OS LA#S 1. #hat is a port of entr,! A port of entr+ refers to a domesti# port
+. an re$%lar (o%rts en)oin the (olle(tion of lo(al ta! es, sub2e#t to the provisions of Rule D8 of Rules of ourt'/reliminar+ 5n2u#tion*.
IV. ;ARIHH AN2 S;OS LA#S 1. #hat is a port of entr,! A port of entr+ refers to a domesti# port open to both foreign and #oastwise trade 'e#. CD(!, T*.
3. 2istin$%ish fair /ar@et :al%e7HV8 fro/ assesse* :al%e7AV8. a. F% is de#lared b+ the owner sub2e#t to the final determination b+ the assessor. 9n the other hand, A% is determined b+ the appli#ation of the assessment level to the F%. b. F% is the a#tual value of the real propert+ in the maret@ A% is merel+ a per#entage of the F%.
".
0. #hat is appraisal! 5t is the a#t or pro#ess of determining the value of the propert+ as of a spe#ifi# date for a spe#ifi# purpose 'e#. (66, &7* -8D provides that de#isions of Regional Gire#tors ma+ be appealed to the TA. A Regional Gire#tor possesses delegated powers to issue assessment noti#es on behalf of the 5R. '5n Fortale;a vs. olle#tor, the Regional Gire#torLs assessment was made with endorsement of the ommissioner, so there was no need for the petitioner to elevate his #ase to the ommissioner*.
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$4$/T59N? 5n ommissioner of ustoms v. /lanterLs /rodu#ts 5n#, ar. (), (686, while a #laim for refund was still pending in the 9ffi#e of the olle#tor of ustoms, the importer was allowed to file an appeal with the Tax ourt even in the absen#e of an administrative de#ision of the #laim for refund. The too note of the
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5n #ases where the taxpa+er files several re3uests for re#onsideration of a protested assessment and these re3uests for re#onsideration are all denied, the appealable de#ision is the letter of denial where the 5R not onl+ demanded pa+ment BT made a statement regarding a resort to legal remedies. A reiteration of B5RLs previous demand for pa+ment amounts to finalit+ of its de#ision. Administrative a#tions whi#h are tantamount to appealable de#isions 'when the a#tion to #olle#t is b+ 2udi#ial remedies*.
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