Income Tax Matatag Notes
Income Tax Matatag Notes
Income Tax Matatag Notes
Within
Taxable
Taxable
Taxable
Taxable
Without
Taxable
Not
taxable
Not
taxable
Not
taxable
Situs
Lex
Rea
Sitae
Tangible
Personal
property
Where
property
is
physically
located
although
the
Where
property
is
physically
located
although
the
owner
resides
in
another
jurisdiction.
owner
resides
in
another
jurisdiction.
Situs
Income
Donors Tax
Estate Tax
Business
Tax
Situs
Type
of
Tax
VAT
Where
transaction
is
made.
Residence
Principle
A
resident
alien
is
liable
to
pay
Philippine
income
tax
on
his
income
from
sources
within
the
Philippines
but
is
exempt
from
tax
on
his
income
from
sources
outside
the
Philippines.
Source
of
Income
Principle
An
alien
is
subject
to
Philippine
income
tax
because
he
derives
income
from
sources
within
the
Philippines.
Thus,
a
non-resident
alien
or
non-resident
foreign
corporation
is
liable
to
pay
Philippine
income
tax
on
income
from
sources
within
the
Philippines,
such
as
dividend
interest,
rent,
or
royalty,
despite
the
fact
that
he
has
not
set
foot
in
the
Philippines.
TAXABLE
PERIOD
The
accounting
periods
used
in
determining
the
taxable
income
of
taxpayers
are:
Calendar
Year
-
Accounting
period
of
12
months
ending
on
the
last
day
of
December
Fiscal
Year
-
Accounting
period
of
12
months
ending
on
the
last
day
of
any
month
other
than
December
[Sec.
22(Q),
NIRC].
Short
Period-
Accounting
period
which
starts
after
the
first
month
of
the
tax
year
or
ends
before
the
last
month
of
the
tax
year
(less
than
12
months).
INSTANCES
WHEREBY
SHORT
ACCOUNTING
PERIOD
ARISES
(1)
When
a
corporation
is
newly
organized.
(2)
When
a
corporation
is
dissolved.
(3)
When
a
corporation
changes
accounting
period.
(4)
When
the
taxpayer
dies.
"Taxable
year"
means
the
calendar
year,
or
the
fiscal
year
ending
during
such
calendar
year,
upon
the
basis
of
which
the
net
income
is
computed
THE
CONCEPT
OF
INCOME
Income
It
is
an
amount
of
money
coming
to
a
person
within
a
specified
time,
whether
as
payment
for
services,
interest
or
profit
from
investment.
Unless
otherwise
specified.
It
means
cash
or
its
equivalent.
Income
can
also
be
thought
of
as
a
flow
of
the
fruits
of
one's
labor.
[Conwi
v.
CTA,
G.R.
No.
48532
August
31,
1992]
Capital
vs.
Income
(Madrigal
vs
Rafferty)
Income
Capital
Service of wealth
Wealth itself
Taxable
Fruit
Tree
REQUISITES
FOR
THE
TAXABILITY
OF
INCOME
Existence
of
taxable
income
(a)
There
is
INCOME,
gain
or
profit
(b)
RECEIVED
or
REALIZED
during
the
taxable
year
(c)
NOT
EXEMPT
from
income
tax
"The
fact
is
that
property
is
a
tree,
income
is
the
fruit;
labor
is
a
tree,
income
the
fruit;
capital
is
a
tree,
income
the
fruit."
A
tax
on
income
is
not
a
tax
on
property.
"Income,"
as
here
used,
can
be
defined
as
"profits
or
gains."
[Madrigal
vs.
Rafferty
(1918)]
A
mere
increase
in
the
value
of
property
is
not
income,
but
merely
unrealized
increase
in
capital.
The
increase
in
the
value
of
property
is
also
known
as
appraisal
surplus
or
revaluation
increment.
Tests
of
Realization
of
Income
Actual
vis--vis
Constructive
receipt
(1)
Actual
receipt
Income
is
actually
reduced
to
possession.
The
realization
of
gain
may
take
the
form
of
actual
receipt
of
cash.
(2)
Constructive
receipt
An
income
is
considered
constructively
received
when
it
is
credited
to
the
account
of,
or
segregated
in
favor
of
a
person.
The
person
may
withdraw
the
said
account
credited
in
his
favor
anytime
without
any
substantial
limitations
or
conditions
upon
which
payment
or
enjoyment
is
to
be
made
or
exercised.
Examples
of
constructive
receipt
of
income
are:
Citizens
(1)
Resident
Citizens
(RC)
(2)
Non-resident
Citizens
(NRC)
(a)
Citizen
of
the
Philippines
who
establishes
to
the
satisfaction
of
the
Commissioner
the
fact
of
his
physical
presence
abroad
with
a
definite
intention
to
reside
therein.
(b)
Citizen
who
leaves
the
Philippines
during
the
taxable
year
to
reside
abroad,
either
as
an
immigrant
or
for
employment
on
a
permanent
basis.
(c)
Citizen
of
the
Philippines
who
works
and
derives
income
from
abroad
and
whose
employment
thereat
requires
him
to
be
physically
present
abroad
most
of
the
time
during
the
taxable
year.
(d)
Citizen
previously
considered
as
non-
resident
citizen
and
who
arrives
in
the
Philippines
at
any
time
during
the
taxable
year
to
reside
permanently
in
the
Philippines
treated
as
NRC
with
respect
to
his
income
derived
from
sources
abroad
until
the
date
of
his
arrival
in
the
Philippines.
Aliens
1.
Resident
Aliens
An
alien
actually
present
in
the
Philippines
who
is
not
a
mere
transient
or
sojourner
is
a
resident
for
income
tax
purposes.
No/Indefinite
Intention
=
RESIDENT:
If
he
lives
in
the
Philippines
and
has
no
definite
intention
as
to
his
stay,
he
is
a
resident.
A
mere
floating
intention
indefinite
as
to
time,
to
return
to
another
country
is
not
sufficient
to
constitute
him
a
transient.
Definite
Intention
=
TRANSIENT:
One
who
comes
to
the
Philippines
for
a
definite
purpose,
which
in
its
nature
may
be
promptly
accomplished,
is
a
Exception:
Definite
Intention
but
such
cannot
be
promptly
accomplished;
If
his
purpose
is
of
such
nature
that
an
extended
stay
may
be
necessary
for
its
accomplishment,
and
thus
the
alien
makes
his
home
temporarily
in
the
Philippines,
then
he
becomes
a
resident.
2.
Non
Resident
Aliens
Engaged
in
trade
or
business
within
the
Philippines
-
If
the
aggregate
period
of
his
stay
in
the
Philippines
is
more
than
180
days
during
any
calendar
year.
Not
engaged
in
trade
or
business
within
the
Philippines
-
If
the
aggregate
period
of
his
stay
in
the
Philippines
does
not
exceed
180
days.
Corporations
Includes
all
types
of
corporations
and
partnerships
(no
matter
how
created
or
organized),
joint
stock
companies,
joint
accounts,
associations,
or
insurance
companies,
whether
or
not
registered
with
the
SEC.
Excludes
General
Professional
Partnerships
(GPP),
joint
venture
or
consortium
formed
for
the
purpose
of
undertaking
construction
projects,
joint
venture
or
consortium
engaging
in
petroleum,
coal,
geothermal
and
other
energy
operations
pursuant
to
an
operating
or
consortium
agreement
under
a
service
contract
with
the
government.
1.
Domestic
Corporations
a
corporation
created
and
organized
under
its
laws
(the
law
of
incorporation
test).
2.
Foreign
Corporations
Partnership
The
Tax
Code
mandates
that
every
other
type
of
business
partnership
is
subject
to
income
tax
in
the
same
manner
and
at
the
same
rate
as
an
ordinary
corporation.
General
Professional
Partnerships
(GPP)
A
general
professional
partnership
is
a
partnership
formed
by
persons
for
the
sole
purpose
of
exercising
their
common
profession,
no
part
of
the
income
of
which
is
derived
from
engaging
in
any
trade
or
business.
Not
considered
as
a
taxable
entity
for
income
tax
purposes.
The
partners
themselves
are
liable,
not
the
partnership,
are
liable
for
the
payment
of
income
tax
in
their
individual
capacities.
Estates
and
Trusts
Taxable
estates
and
trusts
are
taxed
in
the
same
manner
and
on
the
same
basis
as
an
individual.
Co-ownership
For
income
tax
purposes,
the
co-owners
in
a
coownership
report
their
share
of
the
income
from
the
property
owned
in
common
by
them
in
their
individual
tax
returns
for
the
year
and
the
coownership
is
not
considered
as
a
separate
taxable
entity
or
a
corporation.
DEFINITION
OF
TERMS
(B)
The
term
'corporation'
shall
include
partnerships,
no
matter
how
created
or
organized,
joint-stock
companies,
joint
accounts
(cuentas
en
participacion),
association,
or
insurance
companies,
but
does
not
include
general
professional
partnerships
and
a
joint
venture
or
consortium
formed
for
the
purpose
of
undertaking
construction
projects
or
engaging
in
petroleum,
coal,
geothermal
and
other
energy
operations
pursuant
to
an
operating
consortium
agreement
under
a
service
contract
with
the
Government.
'General
professional
partnerships'
are
partnerships
formed
by
persons
for
the
sole
purpose
of
exercising
their
common
profession,
no
part
of
the
income
of
which
is
derived
from
engaging
in
any
trade
or
business.
(C)
The
term
'domestic',
when
applied
to
a
corporation,
means
created
or
organized
in
the
Philippines
or
under
its
laws.
(D)
The
term
'foreign',
when
applied
to
a
corporation,
means
a
corporation
which
is
not
domestic
(O)
The
terms
'including'
and
'includes',
when
used
in
a
definition
contained
in
this
Title,
shall
not
be
deemed
to
exclude
other
things
otherwise
within
the
meaning
of
the
term
defined.
(P)
The
term
'taxable
year'
means
the
calendar
year,
or
the
fiscal
year
ending
during
such
calendar
year,
upon
the
basis
of
which
the
net
income
is
computed
under
this
Title.
'Taxable
year'
includes,
in
the
case
of
a
return
made
for
a
fractional
part
of
a
year
under
the
provisions
of
this
Title
or
under
rules
and
regulations
prescribed
by
the
Secretary
of
Finance,
upon
recommendation
of
the
commissioner,
the
period
for
which
such
return
is
made.
(Q)
The
term
'fiscal
year'
means
an
accounting
period
of
twelve
(12)
months
ending
on
the
last
day
of
any
month
other
than
December.
(R)
The
terms
'paid
or
incurred'
and
'paid
or
accrued'
shall
be
construed
according
to
the
method
of
accounting
upon
the
basis
of
which
the
net
income
is
computed
under
this
Title.
(S)
The
term
'trade
or
business'
includes
the
performance
of
the
functions
of
a
public
office.
(T)
The
term
'securities'
means
shares
of
stock
in
a
corporation
and
rights
to
subscribe
for
or
to
receive
such
shares.
The
term
includes
bonds,
debentures,
notes
or
certificates,
or
other
evidence
or
indebtedness,
issued
by
any
corporation,
including
those
issued
by
a
government
or
political
subdivision
thereof,
with
interest
coupons
or
in
registered
form.
(U)
The
term
'dealer
in
securities'
means
a
merchant
of
stocks
or
securities,
whether
an
individual,
partnership
or
corporation,
with
an
established
place
of
business,
regularly
engaged
in
the
purchase
of
securities
and
the
resale
thereof
to
customers;
that
is,
one
who,
as
a
merchant,
buys
securities
and
re-sells
them
to
customers
with
a
view
to
the
gains
and
profits
that
may
be
derived
therefrom.
[6]
(V)
The
term
'bank'
means
every
banking
institution,
as
defined
in
Section
2
of
Republic
Act
No.
337,
as
amended,
otherwise
known
as
the
"General
banking
Act."
A
bank
may
either
be
a
commercial
bank,
a
thrift
bank,
a
development
bank,
a
rural
bank
or
specialized
government
bank.
(W)
The
term
'non-bank
financial
intermediary'
means
a
financial
intermediary,
as
defined
in
Section
2(D)(C)
of
[7]
Republic
Act
No.
337,
as
amended,
otherwise
known
as
the
"General
Banking
Act,"
authorized
by
the
Bangko
Sentral
ng
Pilipinas
(BSP)
to
perform
quasi-banking
activities.
(X)
The
term
'quasi-banking
activities'
means
borrowing
funds
from
twenty
(20)
or
more
personal
or
corporate
lenders
at
any
one
time,
through
the
issuance,
endorsement,
or
acceptance
of
debt
instruments
of
any
kind
other
than
deposits
for
the
borrower's
own
account,
or
through
the
issuance
of
certificates
of
assignment
or
similar
instruments,
with
recourse,
or
of
repurchase
agreements
for
purposes
of
relending
or
purchasing
receivables
and
other
similar
obligations:
Provided,
however,
That
commercial,
industrial
and
other
non-financial
companies,
which
borrow
funds
through
any
of
these
means
for
the
limited
purpose
of
financing
their
own
needs
or
the
needs
of
their
agents
or
dealers,
shall
not
be
considered
as
performing
quasi-banking
functions.
(Y)
The
term
'deposit
substitutes'
shall
mean
an
alternative
from
of
obtaining
funds
from
the
public
(the
term
'public'
means
borrowing
from
twenty
(20)
or
more
individual
or
corporate
lenders
at
any
one
time)
other
than
deposits,
through
the
issuance,
endorsement,
or
acceptance
of
debt
instruments
for
the
borrowers
own
account,
for
the
purpose
of
relending
or
purchasing
of
receivables
and
other
obligations,
or
financing
their
own
needs
or
the
needs
of
their
agent
or
dealer.
These
instruments
may
include,
but
need
not
be
limited
to
bankers'
acceptances,
promissory
notes,
repurchase
agreements,
including
reverse
repurchase
agreements
entered
into
by
and
between
the
Bangko
Sentral
ng
Pilipinas
(BSP)
and
any
authorized
agent
bank,
certificates
of
assignment
or
participation
and
similar
instruments
with
recourse:
Provided,
however,
That
debt
instruments
issued
for
interbank
call
loans
with
maturity
of
not
more
than
five
(5)
days
to
cover
deficiency
in
reserves
against
deposit
liabilities,
including
those
between
or
among
banks
and
quasi-banks,
shall
not
be
considered
as
deposit
substitute
debt
instruments.
(Z)
The
term
'ordinary
income'
includes
any
gain
from
the
sale
or
exchange
of
property
which
is
not
a
capital
asset
or
property
described
in
Section
39(A)(1).
Any
gain
from
the
sale
or
exchange
of
property
which
is
treated
or
considered,
under
other
provisions
of
this
Title,
as
'ordinary
income'
shall
be
treated
as
gain
from
the
sale
or
exchange
of
property
which
is
not
a
capital
asset
as
defined
in
Section
39(A)(1).
The
term
'ordinary
loss'
includes
any
loss
from
the
sale
or
exchange
of
property
which
is
not
a
capital
asset.
Any
loss
from
the
sale
or
exchange
of
property
which
is
treated
or
considered,
under
other
provisions
of
this
Title,
as
'ordinary
loss'
shall
be
treated
as
loss
from
the
sale
or
exchange
of
property
which
is
not
a
capital
asset.
(AA)
The
term
'rank
and
file
employees'
shall
mean
all
employees
who
are
holding
neither
managerial
nor
supervisory
position
as
defined
under
existing
provisions
of
the
Labor
Code
of
the
Philippines,
as
amended.
(BB)
The
term
'mutual
fund
company'
shall
mean
an
open-end
and
close-end
investment
company
as
defined
under
[8]
the
Investment
Company
Act.
(CC)
The
term
'trade,
business
or
profession'
shall
not
include
performance
of
services
by
the
taxpayer
as
an
employee.
(DD)
The
term
'regional
or
area
headquarters'
shall
mean
a
branch
established
in
the
Philippines
by
multinational
companies
and
which
headquarters
do
not
earn
or
derive
income
from
the
Philippines
and
which
act
as
supervisory,
communications
and
coordinating
center
for
their
affiliates,
subsidiaries,
or
branches
in
the
Asia-Pacific
Region
and
other
foreign
markets.
(EE)
The
term
'regional
operating
headquarters'
shall
mean
a
branch
established
in
the
Philippines
by
multinational
companies
which
are
engaged
in
any
of
the
following
services:
general
administration
and
planning;
business
planning
and
coordination;
sourcing
and
procurement
of
raw
materials
and
components;
corporate
finance
advisory
services;
marketing
control
and
sales
promotion;
training
and
personnel
management;
logistic
services;
research
and
development
services
and
product
development;
technical
support
and
maintenance;
data
processing
and
communications;
and
business
development.
(FF)
The
term
'long-term
deposit
or
investment
certificate'
shall
refer
to
certificate
of
time
deposit
or
investment
in
the
form
of
savings,
common
or
individual
trust
funds,
deposit
substitutes,
investment
management
accounts
and
other
investments
with
a
maturity
period
of
not
less
than
five
(5)
years,
the
form
of
which
shall
be
prescribed
by
the
Bangko
Sentral
ng
Pilipinas
(BSP)
and
issued
by
banks
only
(not
by
non-bank
financial
intermediaries
and
finance
companies)
to
individuals
in
denominations
of
Ten
thousand
pesos
(P10,000)
and
other
denominations
as
may
be
prescribed
by
the
BSP.
(GG)
The
term
'statutory
minimum
wage'
shall
refer
to
the
rate
fixed
by
the
Regional
Tripartite
Wage
and
Productivity
Board,
as
defined
by
the
Bureau
of
Labor
and
Employment
Statistics
(BLES)
of
the
Department
of
Labor
[9]
and
Employment
(DOLE).
(HH)
The
term
'minimum
wage
earner'
shall
refer
to
a
worker
in
the
private
sector
paid
the
statutory
minimum
wage
or
to
an
employee
in
the
public
sector
with
compensation
income
of
not
more
than
the
statutory
minimum
wage
in
the
non-agricultural
sector
where
he/she
is
assigned.
SOURCES
OF
INCOME
Services
Compensation
for
labor
or
personal
services
performed
in
the
Philippines:
As
a
rule,
the
situs
of
compensation
is
the
place
of
performance
of
the
services.
Services
rendered
outside
Philippines
taxing
jurisdiction
and
are
therefore
not
subject
to
contractors
tax.
(CIR
vs.
Marubeni)
Passive
Investment
Income
Under
Sec
24(B),
a
final
tax
is
imposed
upon
gross
passive
income
of
citizen
and
resident
aliens.
An
income
is
considered
passive
if
the
taxpayer
merely
waits
for
it
to
be
realized.
Interest
Income
An
earning
derived
from
depositing
or
lending
of
money,
goods
or
credits
[Valencia
and
Roxas]
e.g.,
interest
income
from
government
securities
such
as
Treasury
Bills.
Unless
exempted
by
law,
interest
income
received
by
the
taxpayer,
whether
or
not
usurious,
is
subject
to
income
tax.
NDC
v.
CIR
The
residence
of
the
obligor
who
pays
the
interest
rather
than
the
physical
location
of
the
bonds
or
notes
or
the
place
of
payment
is
the
determining
factor
of
the
source
of
interest
income.
When
the
obligor
is
a
resident
of
the
Philippines
the
interest
payment
is
made
by
him
can
have
no
other
source
than
within
the
Philippines.
Dividend
Income
A
form
of
earnings
derived
from
the
distribution
made
by
a
corporation
out
of
its
earnings
or
profits
and
payable
to
its
stockholders,
whether
in
money
or
in
property.
In
general,
dividends
are
included
in
the
gross
income
of
the
stockholder,
unless
they
are
exempt
from
tax
or
subject
to
final
ax
at
preferential
rate
under
the
Tax
Code.
(1)
Cash
dividend
Dividends
are
included
in
the
gross
income
of
the
stockholder,
unless
they
are
exempt
from
tax
or
subject
to
tax
at
preferential
rate
under
the
NIRC.
Cash
dividend
is
the
most
common
form
of
dividend,
valued
at
the
amount
of
money
received
by
the
stockholder.
Cash
dividend
and
property
dividend
are
subject
to
income
tax.
(2) Stock dividend Stock dividend is generally exempt from income tax, EXCEPT:
(a)
If
a
corporation
cancels
or
redeems
stock
issued
as
a
dividend
at
such
time
and
in
such
manner
as
to
make
the
distribution
and
cancellation
or
redemption,
in
whole
or
in
part,
essentially
equivalent
to
the
distribution
of
a
taxable
dividend,
the
amount
so
distributed
in
redemption
or
cancellation
of
the
stock
shall
be
considered
as
taxable
income
to
the
extent
that
it
represents
a
distribution
of
earnings
or
profits
(Sec.
73(B),
NIRC);
or
(b)
Where
there
is
an
option
that
some
stockholders
could
take
cash
or
property
dividends
instead
of
stock
dividends;
some
stockholders
exercised
the
option
to
take
cash
of
property
dividends;
and
the
exercise
of
option
resulted
in
a
change
of
the
stockholders
proportionate
share
in
the
outstanding
share
of
the
corporation.
Property
dividend
Dividends
are
included
in
the
gross
income
of
the
stockholder,
unless
they
are
exempt
from
tax
or
subject
to
tax
at
preferential
rate
under
the
NIRC.
Cash
dividend
and
property
dividend
are
subject
to
income
tax.
Liquidating
dividend
Represents
distribution
of
all
the
property
or
assets
of
a
corporation
in
complete
liquidation
or
dissolution.
It
is
strictly
not
dividend
income,
but
rather
is
treated
in
effect,
as
a
sale
of
shares
of
stock
resulting
in
capital
gain
or
loss.
The
difference
between
the
cost
or
other
basis
of
the
stock
and
the
amount
received
in
liquidation
of
the
stock
is
a
capital
gain
or
a
capital
loss.
Where
property
is
distributed
in
liquidation,
the
amount
received
is
the
FMV
of
such
property.
The
income
is
subject
to
ordinary
income
tax
rates
and
NOT
to
the
FWT
on
dividends.
Rentals
and
Royalties
From
property
located
in
the
Philippines
or
from
any
interest
in
such
property,
including
rentals
or
royalties
for
1. The
use
of
or
the
right
or
privilege
to
use
in
the
Philippines
any
copyright,
patent,
design
or
model,
plan,
secret
formula
or
process,
goodwill,
trademark,
trade
brand
or
other
like
property
or
right;
2. The
use
of,
or
the
right
to
use
in
the
Philippines
any
industrial,
commercial
or
scientific
equipment;
3. The
supply
of
scientific,
technical,
industrial
or
commercial
knowledge
or
information;
4. The
supply
of
any
assistance
that
is
ancillary
and
subsidiary
to,
and
is
furnished
as
a
means
of
enabling
the
application
or
enjoyment
of,
any
such
property
or
right
as
is
mentioned
in
(a),
any
such
equipment
as
is
mentioned
in
(b)
or
any
such
knowledge
or
information
as
is
mentioned
in
(c);
5. The
supply
of
services
by
a
nonresident
person
or
his
employee
in
connection
with
the
use
of
property
or
rights
belonging
to,
or
the
installation
or
operation
of
any
brand,
machinery
or
other
apparatus
purchased
from
such
nonresident
person;
6. Technical
advice,
assistance
or
services
7. rendered
in
connection
with
technical
management
or
administration
of
any
scientific,
industrial
or
commercial
undertaking,
venture,
project
or
scheme;
and
8. The
use
of
or
the
right
to
use:
9. Motion
picture
films;
As
a
rule,
the
situs
of
rental
income
is
the
place
where
the
property
is
located.
The
situs
of
royalty
income
is
where
the
rights
are
exercised.
Sale
Of
Real
Property
As
a
rule,
the
situs
of
the
income
from
sale
of
real
property
is
where
the
realty
is
located.
Sale
Of
Personal
Property
General
Rule:
Gains,
profits
and
income
from
the
sale
of
personal
property,
subject
to
the
situs
of
the
place
of
sale.
Place
of
Purchase
Place of Sale
Treatment
Philippines
Abroad
Income Without
Abroad
Philippines
Income Within
Exceptions:
(1)
Gain
from
the
sale
of
shares
of
stock
in
a
domestic
corporation
Treated
as
derived
entirely
from
sources
within
the
Philippines
regardless
of
where
the
said
shares
are
sold.
(2)
Gains
from
the
sale
of
(manufactured)
personal
property:(a)produced
(in
whole
or
in
part)
by
the
taxpayer
within
and
sold
without
the
Philippines,
or(b)produced
(in
whole
or
in
part)
by
the
taxpayer
without
and
sold
within
the
PhilippinesTreated
as
derived
partly
from
sources
within
and
partly
from
sources
without
the
Philippines.
Shares
of
Stock
of
Domestic
Corporation
Treated
as
derived
entirely
from
sources
within
the
Philippines
regardless
of
where
the
said
shares
are
sold.
Situs
of
Income
Tax
Income
Interest
Residence of debtor
Services
Place of performance
Dividends
Residence of Corporation
Royalties
Place of exercise
Rentals
Location of property
Location of property
(a)
Tangible
(1)
Purchase
and
Location
of
Sale
sale:
(2)Manufactured
w/in
and
sold
w/o:
Partly
w/in
and
partly
w/o
(3)
Manufactured
w/o
and
sold
w/in:
Partly
w/in
and
partly
w/o
Shares of Stock
Place of incorporation
TAX
ON
SOFTWARE
An
idea
is
most
often
embodied
in
a
software.
The
Bureau
of
Internal
Revenue
(BIR)
had
issued
Revenue
Memorandum
Circular
(RMC)
44-2005
to
clarify
tax
on
software
and
create
a
guideline
on
the
different
classifications
thereof.
The
RMC
classifies
software
payments
either
as
business
income,
royalties,
rental
income
or
capital
gains.
Compensation
Income
Income
arising
from
an
employer-employee
(ER-EE)
relationship.
It
means
all
remuneration
for
services
performed
by
an
EE
for
his
ER,
including
the
cash
value
of
all
remuneration
paid
in
any
medium
other
than
cash
[Sec.
78(A)],
unless
specifically
excluded
by
the
Tax
Code.
General
Rule:
every
form
of
compensation
income
is
taxable
regardless
of
how
it
is
earned,
by
whom
it
is
paid,
the
label
by
which
it
is
designated,
the
basis
upon
which
it
is
determined,
or
the
form
in
which
it
is
received.
The
basis
upon
which
remuneration
is
paid
is
immaterial.
It
may
be
paid
on
the
basis
of
piece
of
work,
percentage
of
profits,
hourly,
weekly,
monthly,
or
annually.
Exception:
The
term
wages
does
NOT
include
remuneration
paid:
(1) For agricultural labor paid entirely in products of the farm where the labor is performed, or
(3) For casual labor not in the course of the employer's trade or business, or
(4)
For
services
by
a
citizen
or
resident
of
the
Philippines
for
a
foreign
government
or
an
intl
organization.
[Sec.
78(A)]
Forms
of
compensation
and
how
they
are
assessed
(a)
Cash
If
compensation
is
paid
in
cash,
the
full
amount
received
is
the
measure
of
the
income
subject
to
tax.
(b)
Medium
other
than
money
If
services
are
paid
for
in
a
medium
other
than
money
(e.g.
shares
of
stock,
bonds,
and
other
forms
of
property),
the
fair
market
value
(FMV)
of
the
thing
taken
in
payment
is
the
amount
to
be
included
as
compensation
subject
to
tax.
If
the
services
are
rendered
at
a
stipulated
price,
in
the
absence
of
evidence
to
the
contrary,
such
price
will
be
presumed
to
be
the
FMV
of
the
remuneration
received.
(c)
Living
quarters
or
meals
-
General
Rule:
The
value
to
the
employee
of
the
living
quarters
and
meals
given
by
the
employer
shall
be
added
to
his
compensation
subject
to
withholding.
Exception:
If
living
quarters/meals
are
furnished
to
an
employee
for
the
convenience
of
the
employer
the
value
needed
NOT
be
included
as
part
of
compensation
income.
(d)
Facilities
and
privileges
of
a
relatively
small
value
-
Facilities
and
privileges
(such
an
entertainment,
medical
services,
or
so
called
courtesy
discounts
on
purchases),
otherwise
known
as
de
minimis
benefits
furnished
or
offered
by
an
employer
to
his
employees
generally,
are
NOT
considered
as
compensation
subject
to
income
tax
and
therefore
withholding
tax
if
such
facilities
are
offered
or
furnished
by
the
employer
merely
as
means
of
promoting
the
health,
goodwill,
contentment,
or
efficiency
of
his
employees.
Convenience
of
the
Employer
Rule
Allowances
in
kind
furnished
to
the
employee
for
and
as
necessary
incident
to
the
performance
of
his
duties
are
not
taxable
[Valencia
and
Roxas].
If
meals,
living
quarters,
and
other
facilities
and
privileges
are
furnished
to
an
employee
for
the
convenience
of
the
employer,
and
incidental
to
the
requirement
of
the
employees
work
or
position,
the
value
of
that
privilege
need
not
be
included
as
compensation
[Henderson
v.
Collector]
Tips
and
Gratuities
those
paid
directly
to
the
employee
(usually
by
a
customer
of
the
employer)
which
are
not
accounted
for
by
the
employee
to
the
employer.
(taxable
income
but
not
subject
to
withholding
tax)
[RR
NO.
2-98,
Sec.
2.78.1]
Hazard
or
Emergency
Pay
additional
payment
received
due
to
the
workers
exposure
to
danger
or
harm
while
working.
It
is
normally
added
to
the
basic
salary
together
with
the
overtime
pay
and
night
differential
to
arrive
at
gross
salary.
Retirement
Pay
a
lump
sum
payment
received
by
an
employee
who
has
served
a
company
for
a
considerable
period
of
time
and
has
decided
to
withdraw
from
work
into
privacy.
[RR
6-82,
Sec.
2b]
In
general,
retirement
pay
is
taxable
except
in
the
following
instances:
(2) Retirement pay (R.A. 7641) due to old age provided the following requirements are met:
(b)
It
must
be
a
reasonable
benefit
plan.
(Its
implementation
must
be
fair
and
equitable
for
the
benefit
of
all
employees)
(c) The retiree should have been employed for 10 years in the said company;
(d) The retiree should have been 50 years old or above at the time of retirement; and
Separation
pay
taxable
if
voluntarily
availed
of.
It
shall
not
be
taxable
if
involuntary
i.e.
death,
sickness,
disability,
reorganization/merger
of
company
and
company
at
the
brink
of
bankruptcy
or
for
any
cause
beyond
the
control
of
the
said
official
or
employee.
For
any
cause
beyond
the
control.
(1)
Connotes
involuntariness
on
the
part
of
the
official
or
employee
(2)
The
separation
from
the
service
of
the
official
or
employee
must
not
be
asked
for
or
initiated
by
him.
(3)
The
separation
was
not
of
his
own
making.
(4)
Such
fact
shall
be
duly
established
by
the
employer
by
competent
evidence
which
should
be
attached
to
the
monthly
return
for
the
period
in
which
the
amount
paid
due
to
the
involuntary
separation
was
made.
(6)
Amounts
received
by
reason
of
involuntary
separation
remain
EXEMPT
from
income
tax
even
if
the
official
or
the
employee,
at
the
time
of
separation,
had
rendered
less
than
ten
(10)
years
of
service
and/or
is
below
fifty
(50)
years
of
age.
(7)Any
payment
made
by
an
employer
to
an
employer
to
an
employee
on
account
of
dismissal,
constitutes
compensation
regardless
of
whether
the
employer
is
legally
bound
by
contract,
statute,
or
otherwise,
to
make
such
payment.
Pension
a
stated
allowance
paid
regularly
to
a
person
on
his
retirement
or
to
his
dependents
on
his
death,
in
consideration
of
past
services,
meritorious
work,
age,
loss,
or
injury.
Pension
is
taxable
unless
the
law
states
otherwise,
OR
unless
the
BIR
approves
the
pension
plan
of
a
private
company.
Vacation
and
sick
leave-
rules
in
determining
whether
money
received
for
vacation
and
sick
leave
is
taxable
or
not:
(a)
If
paid
or
availed
of
as
salary
of
an
employee
who
is
on
vacation
or
on
sick
leave
notwithstanding
his
absence
from
work,
it
constitutes
TAXABLE
compensation
income.
[RR
6-82,
2d]
(b)
Monetized
value
of
unutilized
VACATION
leave
credits
of
ten
(10)
days
or
less
which
were
paid
to
private
employees
during
the
year,
and
the
monetized
value
of
vacation
and
sick
leave
credits
paid
to
government
officials
and
employees
are
NOT
subject
to
income
tax
and
to
the
withholding
tax.
These
are
de
minimis
benefits.
[RR
no.
5-2011,
Sec
2.78.1(A)(7)]
Note:
monetization
of
sick
leave
credits
of
private
employees
even
if
not
exceeding
10
days
is
not
exempt
from
income
tax
and
withholding
tax
on
wages.
(c)
Terminal
leave
or
money
value
of
accumulated
vacation
and
sick
leave
benefits
received
by
heir
upon
death
of
employee
is
not
taxable.
Thirteenth
month
pay
and
other
benefits
-
Not
taxable
if
the
total
amount
received
is
P30,000
or
less.
Any
amount
exceeding
P30,000
is
taxable.
[Sec.
32
(7)e,
NIRC]
Fringe
Benefits
and
De
Minimis
Fringe
Benefits
any
good,
service,
or
other
benefit
furnished
or
granted
by
an
employer,
in
cash
or
in
kind,
in
addition
to
basic
salaries
of
an
individual
employee
[Sec.
33,
NIRC]
De
Minimis
privileges
of
relatively
small
value
as
given
by
the
employer
to
his
employees.
Fringe
Benefits
and
De
Minimis
are
not
considered
compensation
subject
to
income
tax
and
withholding
tax.
Overtime
Pay
premium
payment
received
for
working
beyond
regular
hours
of
work
which
is
included
in
the
computation
of
gross
salary
of
employee.
It
constitutes
compensation.
Profit
Sharing
the
proportionate
share
in
the
profits
of
the
business
received
by
the
employee
in
addition
to
his
wages.
Awards
for
special
services
awards
for
past
services
or
suggestions
to
employers
resulting
in
the
prevention
of
theft
or
robbery,
etc.
are
also
compensations.
Beneficial
Payments
such
as
where
employer
pays
the
income
tax
owed
by
an
employee
are
additional
compensation
income.
Other
forms
of
compensation
other
forms
received
due
to
services
rendered
are
compensation
paid
in
kind,
e.g.,
insurance
premium
paid
by
the
employer
for
insurance
coverage
where
the
heirs
of
the
employee
are
the
beneficiaries
is
the
employees
income.
Note:
Any
amount
which
is
required
by
law
to
be
deducted
by
the
employer
from
the
compensation
of
an
employee
including
the
withheld
tax
is
considered
as
part
of
the
employees
compensation
and
is
deemed
to
be
paid
to
the
employee
as
compensation
at
the
time
the
deduction
is
made.
(This
also
applies
to
deductions
not
required
by
law.)
(b)
Doing
business:
The
term
implies
a
continuity
of
commercial
dealings
and
arrangements,
and
contemplates,
to
that
extent,
the
performance
of
acts
or
works
or
the
exercise
of
some
of
the
functions
normally
incident
to,
and
in
progressive
prosecution
of,
the
purpose
and
object
of
its
organization.
Professional
Income
Refers
to
fees
received
by
a
professional
from
the
practice
of
his
profession,
provided
that
there
is
NO
employer-employee
relationship
between
him
and
his
clients.
Generally,
the
spouse
who
is
the
gross
compensation
earner
is
the
claimant
of
the
additional
exemptions.
(2)
Where
the
husband
and
wife
are
both
compensation
income
earners:
the
husband
is
the
proper
claimant
of
the
additional
exemptions
EXCEPT
if
there
is
an
express
waiver
by
the
husband
in
favor
of
his
wife,
as
embodied
in
the
application
for
registration
(BIR
Form
No.
1902)
or
in
the
Certificate
of
Update
of
Exemption
and
of
Employers
and
Employees
Information
(BIR
Form
No.
2305),
whichever
is
applicable.
(3)
When
the
spouses
have
business
and/or
professional
income
only:
either
may
claim
the
additional
exemptions
at
the
end
of
the
year.