Commissioner v. BOAC (149 SCRA 395) :: Equivalent." It Is The Amount of Money
Commissioner v. BOAC (149 SCRA 395) :: Equivalent." It Is The Amount of Money
Commissioner v. BOAC (149 SCRA 395) :: Equivalent." It Is The Amount of Money
IN GENERAL
Income Tax
2.
3.
Income
Income v. capital
TAXABLE INCOME
Taxable income
SOURCES OF INCOME
What produces income?
2.
3.
Sources of income
1.
actual receipt
2.
constructive receipt
2.
3.
Scholarships/fellowships YES
Stock dividends - NO
Severance test
2.
3.
2.
3.
Severance test
promise
or
3.
Ordinary gains
CLASSES OF INCOME
1.
merchandising,
2.
capital gain
1.
2.
3.
ordinary gain
a.
business income
b.
compensation income
c.
passive income
d.
Interest income
2.
Rentals/Leases
3.
Royalties
4.
Dividends
5.
Annuities
and
proceeds
of
insurance/other types of insurance
6.
7.
8.
Capital gains
2.
life
1.
corporations v. individuals
2.
nationality
3.
residence
schedular system
global system
Schedular system
Classes of income taxpayers
1.
Individuals
a.
Resident citizens
Global system
b.
Non-resident citizens
c.
Resident aliens
d.
Non-resident aliens
i)
1.
2.
3.
Corporations
a.
Domestic corporations
b.
c.
Special
a.
b.
Insurance companies
c.
d.
1.
2.
2.
3.
4.
PROFESSIONAL
PARTNERSHIP
V.
ORDINARY
BUSINESS PARTNERSHIP
GENERAL
Corporation
Pascual v. Commissioner
Petitioners bought two parcels of land in
1965, however, they did not sell the same nor
make any improvements thereon. In 1966, they
bought another three parcels of land. It was only in
1968 that they sold the two parcels of land after
which they did not make any additional or new
purchase. The remaining three parcels of land were
sold in 1970. Commissioner assessed them
corporate income taxes on the ground that
petitioners established an unregistered partnership
engaged in real estate transactions.
The Supreme Court ruled that no
unregistered partnership was formed. The sharing
of returns does not itself establish a partnership
whether or not the persons therein have a joint or
common right or interest in the property. There
must be a clear intent to form a partnership, the
existence of which has the juridical personality
different from the individual partners and the
freedom of each party to transfer or assign the
whole property.
In this case, there was no showing of intent
to form a partnership. The transactions were
isolated; therefore, the character of habituality
peculiar to business transactions engaged for the
purpose of gain was not present.
The essential elements of a partnership are:
(1) an agreement to contribute money, property, or
industry to a common fund; and (2) an intent to
divide the profits among the contracting parties.
GENERAL PRINCIPLES
PHILIPPINES
OF
INCOME TAXATION
IN THE
2.
3.
4.
6.
2.
Forgiveness of indebtedness
The cancellation and forgiveness of
indebtedness may, dependent upon the
circumstances, amount to:
1.
a payment of income;
2.
a gift; or
3.
a capital transaction.
Resident citizens
2.
Domestic corporations
Non-resident citizen
2.
3.
4.
2.
3.
Domestic corporation
1.
4.
2.
Considered as income
3.
4.
1.
2.
Passive income
TAX ON INDIVIDUALS
3.
4.
How taxed?
An individual citizen, both resident and nonresident, and an individual resident alien
are taxed similarly.
2.
3.
4.
5.
6.
7.
b.
c.
5%
2.
Over P100,000
10%
12% if
pre-terminated
after 3 years to less than 4 years
5%
if
pre-terminated
after 4 years to less than 5 years
8.
b.
2.
4.
1.
2.
1.
2.
3.
Note: The
salaries,
wages,
annuities,
compensation, remuneration and other
emoluments, such as honoraria and
allowances received by these individuals
and their Filipino counterparts occupying
the same position as these alien individuals
shall be subject to 15% tax.
Taxation of OBU employees (BIR Ruling No. 14798 dated October 16, 1998)
TAX ON CORPORATIONS
1999 33%
2000 onwards 32%
Trading Concern
Cost of goods sold shall
include the invoice cost
of the goods sold, plus
import duties, freight in
transporting the goods
to the place where the
goods are actually sold,
including
insurance
while the goods are in
transit.
Manufacturing Concern
Cost
of
goods
manufactured and sold
shall include all costs of
production of finished
goods, such as raw
materials used, direct
labor and manufacturing
overhead, freight cost,
insurance and other
costs incurred to bring
the raw materials to the
factory or warehouse.
1.
A tax effort ratio of twenty percent (20%) of
Gross National Product (GNP)
2.
A ratio of forty percent (40%) of income tax
collection to total tax revenues
3.
4.
A 0.9 percent (0.9%) ratio of the
Consolidated Public Sector Financial Position to
GNP
5.
GOCCs, agencies or instrumentalities
All
corporations,
agencies,
or
instrumentalities owned and controlled by
the government shall pay such rate of tax
upon their taxable income as are imposed
upon corporations or associations engaged
in a similar business, industry, or activity.
Service
Insurance
6.
7.
3.
Philippine
Corporation (PHIC)
4.
Philippine
Office (PCSO)
Health
Charity
Insurance
Sweepstakes
5.
Philippine Amusement and Gaming
Corporation (PAGCOR)
2.
Royalties 20%
3.
4.
b.
Section 27(E)
MCIT
Gross Income
equivalent to gross sales less
sales returns, discounts and
allowances and cost of goods
sold.
Cost of goods shall include all business
sold
expenses directly incurred to
produce the merchandise to
bring them to their present
location and use.
Cost of goods
sold for a trading
or merchandising
concern
Cost of goods
manufactured
and sold for a
manufacturing
concern
Cost of services
2.
3.
4.
5.
interests
2.
dividends
4.
royalties
5.
6.
salaries
7.
wages
8.
premiums
9.
annuities
10.
emoluments
11.
rents
3.
1.
2.
b.
4.
35%
34%
33%
32%
Taxation of
corporations
certain
non-resident
foreign
1.
2.
3.
Intercorporate dividends
Dividends received by a resident
foreign corporation from a domestic
corporation liable to tax under the NIRC
shall not be subject to income tax.
of
aircraft,
b.
2.
a.
Intercorporate dividends
A final withholding tax at the rate of
fifteen percent (15%) is hereby imposed on
the amount of cash and/or property
dividends received by a non-resident
foreign corporation from a domestic
corporation, subject to the condition that
the country in which the non-resident
foreign corporation is domiciled shall allow
a credit against the tax due from the non-
2.
3.
4.
Amount of net operating loss carryover deducted;
1.
Dividends actually or constructively
paid; and
Publicly-held corporations
2.
2.
Banks and other non-bank financial
intermediaries
Coverage
3.
Insurance companies
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
2.
GROSS INCOME
Gross income
2.
3.
4.
Interests;
5.
Rents;
6.
Royalties;
7.
Dividends;
8.
Annuities;
9.
10.
Pensions; and
11.
Facilities
are
not
considered
as
compensation subject to withholding if such
facilities or privileges are of relatively small
value and are offered or furnished by the
employer merely as a means of promoting
the health, goodwill, contentment, or
efficiency of his employees. [Section 2.78.1,
Revenue Regulations 2-98]
2.
9.
10.
Fringe benefit
Housing;
2.
Expense account;
3.
1.
2.
3.
4.
De minimis benefits.
5.
6.
5.
6.
De minimis benefits
7.
8.
RENTALS
Operating lease
INTEREST INCOME
Sources of interest income
1.
interest
on
bank
substitutes/trust
fund
arrangement
deposit/deposit
and
similar
Finance lease
2.
3.
4.
interest
bonds
5.
6.
DIVIDEND INCOME
7.
on
foreign
bonds/government
Dividends
Cash dividend
2.
3.
Property dividend
4.
Liquidating dividend
Stock dividend
Liquidating dividend
Disguised dividends
EXCLUSION
Exclusion
2.
3.
4.
5.
6.
7.
8.
9.
10.
3.
4.
5.
6.
Benefits
received
from
the
Government
Service
Insurance
System,
including
retirement
gratuity received by government
officials and employees
th
12.
13.
14.
1.
2.
3.
2.
1.
foreign governments;
2.
financing
institutions
owned,
controlled, or enjoying refinancing
from foreign governments; and
3.
2.
2.
3.
1.
2.
3.
1.
2.
3.
DEDUCTIONS
IN GENERAL
Deductions
Deduction v. exemption
1.
2.
3.
Deduction v. exclusion
2.
Kinds of deductions
2.
3.
Expenses
2.
Interest
3.
Taxes
4.
Losses
5.
Bad debts
6.
Depreciation
7.
Itemized deductions
2.
8.
9.
10.
Pension trusts
11.
2.
3.
4.
Entertainment, amusement
recreation expenses.
2.
3.
4.
5.
6.
and
2.
2.
Requisites for
employees
1.
1.
2.
3.
deductibility
of
bonuses
to
1.
2.
3.
Tax home
Pensions and compensation for injuries
Rental expense
Rules on repairs
Travel expenses
2.
3.
1.
Entertainment,
expense
amusement
and
Reasonable in amount
2.
3.
5.
3.
Back-to-back interest
1.
Litigation expenses
Litigation expenses that are incurred
in the defense or protection of title are
capital in nature and not deductible.
Promotional expenses
recreation
1.
4.
Advertising expense
To
deduct
allowance
depreciation thereof.
for
1.
3.
2.
3.
2.
3.
4.
TAXES
Tax credit
Limitations on credit
1.
2.
Proof of credits
2.
3.
Losses
1.
2.
3.
4.
5.
2.
3.
2.
Casualty losses
3.
Capital losses
4.
5.
6.
Wagering losses
7.
Abandonment losses
Casualty loss
1.
2.
2.
3.
4.
Wash sale
Wagering losses
Diligent efforts to collect
Abandonment losses
BAD DEBTS
Bad Debts
DEPRECIATION
Depreciation
1.
1.
2.
3.
Sum-of-the-year-digit method.
4.
2.
3.
4.
3.
Depletion v. depreciation
2.
1.
2.
Requisite for
contributions
1.
deductibility
of
charitable
2.
3.
4.
5.
3.
4.
2.
3.
Non-government organization
Utilization
Utilization means:
1.
2.
2.
PENSION TRUSTS
1.
2.
3.
4.
5.
1.
6.
2.
ADDITIONAL
3.
PAYMENTS
2.
Personal exemption
2.
Additional exception
3.
Personal exemptions
1.
Citizens
2.
Resident aliens
3.
4.
P20,000
single person or a
married
person
judicially decreed as
legally
separated
from his or her
spouse
with
no
qualified dependents
P25,000
head of a family
P32,000
married person
Living with
Family
2.
3.
Additional exemption
Dependent
2.
3.
chiefly dependent
taxpayer for support;
upon
the
4.
5.
Change of status
or
have
additional
1.
2.
Capital expenditures
to
non-resident
alien
Premium
payment
on
health
and/or
hospitalization insurance of an individual taxpayer
a.
b.
3.
4.
5.
6.
Capital expenditures
1.
2.
3.
4.
5.
6.
2.
Related taxpayers
1.
2.
3.
4.
5.
6.
2.
3.
Losses from sales or exchanges of property
are not deductible.
Exceptions
CAPITAL GAINS AND LOSSES
1.
Ordinary asset
1.
Holding rule
2.
3.
3.
4.
2.
Capital asset
50%
SOURCES OF TAXATION
Source of income
a.
b.
c.
2.
Exceptions
1.
Merger or consolidation
the
not
the
140,
Sources of taxation
a.
Transactions
taxpayers
between
related
b.
Illegal transactions
c.
1.
2.
Income from
Philippines
sources
without
the
3.
Development
Corporation
Commissioner, 151 SCRA 472]
v.
1.
2.
3.
4.
5.
6.
Interest income
shares of stock in a
shall be treated as
sources within the
of where the said
1.
2.
2.
When
year
used?
1.
2.
3.
2.
b.
2.
3.
4.
5.
6.
Taxable year
1.
Methods of accounting
1.
Accounting periods
1.
Cash Basis
2.
Accrual Method
3.
2.
Mixed/Hybrid
Combination of the cash and accrual
method.
4.
Long-term contracts
These include:
1.
2.
Initial payments
Termination of leasehold
Lessor
who
acquires
building
or
improvements made by the lessee after the
termination of the lease has two options in
reporting said income:
1.
2.
2.
3.
4.
2.
4.
Where to file
1.
2.
3.
Collection agent
4.
5.
When to file
SELF-EMPLOYED INDIVIDUALS
Declaration of income tax for individuals
2.
Self-employment income
Estimated tax
CORPORATE RETURNS
Final adjustment return
Corporation returns
2.
3.
Deficiency
But this is not automatic. Need to apply for
crediting of such excess or tax credit to
succeeding quarters.
Installment payment
1.
2.
3.
4.
2.
2.
Fiduciary returns
Guardians,
trustees,
executors,
administrators, receivers, conservators and
all persons or corporations acting in any
fiduciary capacity shall render a return of
the income of the persons, trust or estate
for whom or which they act, and be subject
to all the provisions of this Title, which
apply to individuals in case such person,
estate or trust has a gross income of twenty
thousand pesos (P20,000) or over during
the taxable year.