Lecture Notes on Taxation

Flashcards on key concepts and definitions related to taxation law based on lecture notes.

What is the supreme law of the land that establishes the fundamental framework of government and protects citizens' rights?

The Constitution.

What is the act of levying or imposing a tax by a taxing authority?

Taxation.

What is a mandatory payment collected by a government to cover the costs of government services?

Tax.

Who is obligated to pay taxes to a government?

Taxpayer.

What kind of tax is withheld at source?

Final Tax.

What kind of tax is imposed on income that must be reported in the annual income tax return?

Regular Tax.

What is a tax of a fixed amount imposed on individuals residing within a specified territory?

Personal, poll, or capitation tax.

What is a tax imposed on property in proportion to its value?

Property Tax.

What is a tax imposed upon the performance of an act or the enjoyment of a privilege?

Excise or Privilege Tax.

What kind of tax is demanded from the person who is intended to pay it?

Direct Tax.

What kind of tax is demanded from one person with the expectation they will shift the burden to another?

Indirect Tax.

What is a tax of a fixed amount imposed by head, number, weight, or measurement?

Specific Tax.

What is a tax of a fixed proportion of the amount or value of the property?

Ad valorem tax.

What kind of tax is imposed for the general purposes of government?

General, fiscal, or revenue tax.

What kind of tax is imposed for a special purpose to achieve social or economic ends?

Special or regulatory tax.

What kind of tax is imposed by the national government?

National tax.

What kind of tax is imposed by the municipal or local government?

Local tax.

What kind of tax is based on a fixed percentage of the amount of the property, income, or other basis to be taxed?

Proportional Tax.

What kind of tax increases as the tax base increases?

Progressive or graduated tax.

What kind of tax decreases as the tax base increases?

Regressive Tax.

What is a tax with rates that combine any of the proportional, progressive, or regressive types?

Mixed Tax.

What does 'income' mean in the context of taxation?

All wealth which flows into the taxpayer other than as a mere return of profit, including gains from the sale or disposition of capital.

What does 'Gross Income' mean in taxation?

All income derived from whatever source, including compensation for services, income from business or profession, gains from property dealings, interests, rents, royalties, dividends, etc.

What are 'Fringe Benefits'?

Any good, service, or other benefit provided by an employer to an employee (except rank-and-file employees).

What are 'De minimis benefits'?

Non-taxable allowances or perks employers give employees for their welfare.

What are 'Capital Assets'?

Any form of real property held by the taxpayer, whether related to his business or not.

What are 'Ordinary assets'?

Properties used in business or trade or held by the taxpayer for sale to customers in the ordinary course of the business.

What does 'Compensation' refer to?

Monetary payment given to an individual in exchange for their services.

What is 'Interest'?

The charge a person is required to pay on the money borrowed.

What does 'Royalty' refer to?

Something paid to obtain intellectual property, or to use intellectual property or rights to such property.

What does 'Rent' refer to?

Periodic payment made by a tenant to a landlord for the use of a property.

What are 'Dividends'?

Profits you receive from your shareholding in a company, paid in cash or in kind.

What is an 'Annuity'?

A contract between an individual and an insurance company providing a fixed income stream for a specific period of life.

What are 'Expenses'?

Costs a business incurs in running its operations, including wages, maintenance, rent, and depreciation.

What are 'Losses'?

Things or items related to business, trade, or profession that was lost from fire, storm, theft or other casualties to become deductible.

What are 'Bad Debts'?

Loans or payments for goods or services which have become worthless or uncollectible.

What is 'Depreciation'?

A measurement of the “useful life” of a business asset to determine the multiyear period over which the cost of that asset can be deducted from taxable income.

What is 'Depletion'?

An accrual accounting technique used to allocate the cost of extracting natural resources such as timber, minerals, and oil from the earth.

What is a 'Pension'?

Income that you receive when you stop working or have reached a certain age.

What is 'Separation Pay'?

Monetary compensation given to an employee who is terminated for authorized causes, such as business closure or redundancy, and is not due to the employee's fault.

What is a 'General Professional Partnership (GPP)'?

Partnerships formed by persons for the sole purpose of exercising their common profession.

What is 'Passive Income'?

Income earned with very minimal involvement from the taxpayer and is generally irregular in timing and amount.

What is 'Taxable Income'?

The portion of your gross income that is subject to taxes.

What are 'Allowable deductions'?

Costs or expenses you incur while running your business that you can claim as tax deductions.

What is a 'Domestic Corporation (DC)'?

A corporation that is organized in accordance with Philippine Laws.

What is a 'Foreign Corporation (FC)'?

A corporation organized under a foreign law.

What is a 'Resident Foreign Corporation (RFC)'?

A foreign corporation that operates and conducts business in the Philippines through a permanent establishment (i.e., a branch).

What is a 'Non-resident Foreign Corporation (NRFC)'?

A foreign corporation that does not operate or conduct business in the Philippines.

What are the ways someone can be a citizen of the Philippines?

Citizens at the time of the Constitution adoption, those with Filipino parents, those born before 1973 of Filipino mothers who elected Filipino citizenship, and those who are naturalized.

What is a 'Resident citizen (RC)'?

A Filipino citizen residing in the Philippines.

What makes someone a 'Non-resident citizen (NRC)'?

Absence from the country for 183 days or more.

What is an 'Alien'?

An individual who is stateless or a national of another country and who lives in the Philippines with no definite intention as to length of stay.

What is a 'Resident alien (RA)'?

An individual who is residing in the Philippines but is not a citizen thereof.

What is a 'Non-resident alien (NRA)'?

An individual who is not residing in the Philippines and who is not a citizen thereof.

What is 'Police Power'?

The power of promoting the public welfare by restraining and regulating the use of liberty and property of all the people.

What is the 'Power of Taxation'?

The power of the state to implement and collect taxes from individuals and businesses, solely to raise revenue for public use.

What is the 'Power of Eminent Domain'?

The power of the state to take private property for public use upon just compensation.

What is 'Fiscal adequacy'?

The principle that sources of revenue should be sufficient to meet the demands of public expenditures.

What is 'Equality or theoretical justice'?

The principle that the tax imposed should be proportionate to the taxpayer's ability to pay.

What is 'Administrative feasibility'?

The principle that tax laws should be capable of convenient, just, and effective administration.

What is the 'Lifeblood Theory'?

The theory that without revenue from taxation, the government will not survive, resulting in detriment to society.

What is the 'Necessity Theory'?

The theory that the power to tax emanates from necessity, because without taxes, government cannot fulfill its mandate.

What is the 'Benefits-Protection Theory'?

The theory that taxpayers receive benefits from taxes through the protection the State affords to them.

What is the 'Symbiotic Relationship Theory'?

Taxation arises because of the reciprocal relation of protection and support between the State and taxpayers.

What does 'Situs of taxation' mean?

A place of taxation; the country that has the power and jurisdiction to levy and collect the tax.

What is an 'Inherent Limitation' in taxation?

A limitation that needs not to be embodied by the constitution but still automatically restricts the power.

What is a 'Constitutional limitation' in taxation?

Limitations specifically imposed by the Philippine Constitution on the government's power to tax.

What does the term ‘person’ mean in taxation?

An individual, a trust, estate or corporation

What does the term ‘corporation’ mean in taxation?

Partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), associations, 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.

What does the term ‘domestic’ corporation mean in taxation?

Created or organized in the Philippines or under its laws.

What does the term ‘foreign’ corporation mean in taxation?

A corporation which is not domestic.

Who are considered a 'non-resident citizen'?

A citizen of the Philippines who establishes physical presence abroad with intent to reside there, or leaves to reside abroad as an immigrant or for permanent employment, or works abroad requiring physical presence most of the time.

What does the term ‘resident alien’ mean in taxation?

An individual whose residence is within the Philippines and who is not a citizen thereof.

What does the term ‘non-resident alien’ mean in taxation?

An individual whose residence is not within the Philippines and who is not a citizen thereof.

What does the term ‘resident foreign corporation’ mean in taxation?

A foreign corporation engaged in trade or business within the Philippines.

What does the term ‘non-resident foreign corporation’ mean in taxation?

A foreign corporation not engaged in trade or business within the Philippines.

What does the term ‘taxpayer’ mean in taxation?

Any person subject to tax imposed by this Title.

What does the term ‘taxable year’ mean in taxation?

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.

What does the term ‘fiscal year’ mean in taxation?

An accounting period of twelve (12) months ending on the last day of any month other than December.

What does the term ‘trade or business’ mean in taxation?

Includes the performance of the functions of a public office.

What does the term ‘securities’ mean in taxation?

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.

What does the term ‘dealer in securities’ mean in taxation?

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.

What does the term ‘bank’ mean in taxation?

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.

What does the term ‘non-bank financial intermediary’ mean in taxation?

A financial intermediary, as defined in Section 2(D)(c) of 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.

What does the term ‘quasi-banking activities’ mean in taxation?

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.

What does the term ‘deposit substitutes’ mean in taxation?

An alternative form 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 borrower’s 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.

What does the term ‘ordinary income’ mean in taxation?

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).

What does the term ‘rank and file employees’ mean in taxation?

All employees who are holding neither managerial nor supervisory position as defined under existing provisions of the Labor Code of the Philippines, as amended.

What does the term ‘mutual fund company’ mean in taxation?

An open-end and close-end investment company as defined under the Investment Company Act.

What does the term ‘trade, business or profession’ shall not include in taxation?

Performance of services by the taxpayer as an employee.

What does the term ‘regional or area headquarters’ mean in taxation?

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.

What does the term ‘regional operating headquarters’ mean in taxation?

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.

What does the term ‘long-term deposit or investment certificate’ mean in taxation?

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 nonbank financial intermediaries and finance companies) to individuals in denominations of Ten thousand pesos (PhP10,000) and other denominations as may be prescribed by the BSP.

What does the term ‘statutory minimum wage’ earner mean in taxation?

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 and Employment (DOLE)

What does the term ‘minimum wage earner’ mean in taxation?

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.

What are ‘capital assets’ in taxation?

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.

What does ‘net capital gain’ mean in taxation?

The excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges.

What does ‘net capital loss’ mean in taxation?

The excess of the losses from sales or exchanges of capital assets over the gains from such sales or exchanges.