Taxation Summary

Flashcards for taxation lecture notes review.

Requisites for Deductibility (After EOPTA Amendment)

1. Ordinary and necessary
2. Paid or Incurred within the taxable year
3. Connected to trade/business or exercise of profession
4. Supported by sufficient evidence
5. Not against the law, morals, public policy/order

Value Added Tax (VAT) - Tax base on sale of goods

Gross sales

Value Added Tax (VAT) - Tax base on sale of services

After EOPTA- Gross sales. Before EOPTA-Gross receipts

Value Added Tax (VAT) - Invoicing requirements - Sale of goods

Issuance of VAT invoice

Value Added Tax (VAT) - VAT exemption threshold for sale of house and lot

P3.6 million (previously P3,199,200)

Value Added Tax (VAT) - VAT filing schedule

Quarterly only (previously monthly and quarterly)

Other Percentage Taxes (OPT) - Tax base after EOPTA

Purely gross sales

Other Percentage Taxes (OPT) - Tax base before EOPTA

Mix of gross sales and gross receipts

Tax Filing - Wrong Venue

Before EOPTA- 25% surcharge. After EOPTA- No Surcharge

Tax Filing - Special concession for micro and small taxpayers (reduced penalties) - Basic surcharge

Micro: gross sales of less than P3M; Small: gross sales of P3M to P20M. Before EOPTA- 25%. After EOPTA- 10%

Tax Filing - Special concession for micro and small taxpayers (reduced penalties) - Interest on deficiency and delinquency

Micro: gross sales of less than P3M; Small: gross sales of P3M to P20M. Before EOPTA- 12%. After EOPTA- 6%

Tax Filing - Period for the BIR to act on the refund application

Before EOPTA- None. After EOPTA- 180 days from submission of documents

Tax Filing - Filing of appeal with CTA

Appeal must be filed within 30 days from receipt of denial or lapse of 180-day period. 2-year period has been removed.

Tax Filing - Preservation of books of accounts and other accounting records Length

Before EOPTA- 10 years. After EOPTA- 5 years

Other Taxes (OPT)

The tax equivalent to three percent (3%) of his gross quarterly sales or receipts for person whose sales or receipts are exempt under Section 109(CC) of this Code from the payment of value-added tax and who is not a VAT-registered person

Individuals Not Required to File Income Tax Return

1. An individual whose taxable income does not exceed P250,000
2. An individual receiving purely compensation income, regardless of amount, from only one employer in the Philippines for the calendar year, the income tax of which has been withheld correctly by the said employer (substituted filing)
3. An individual whose sole income has been subjected to final withholding tax
4. A minimum wage earner (MWE)

Where to File Return

1. An authorized agent bank (AAB)
2. Revenue District Officer, Collection Agent, or duly authorized Treasurer of the city or municipality in which such person has his legal residence or principal place of business in the Philippines, or if there be no legal residence or place of business in the Philippines, with the Office of the Commissioner.

RCIT Rate Based on Taxable Net Income and Total Assets (Excluding Land)

Regular Corporations: Use 25% RCIT for regular corporations

MSMEs: 20% RCIT for MSMEs (no need to pro-rate)

Double Taxation Agreements (DTA)

Submission of CORTT forms has been discontinued (only TTRA is required)

Double Taxation Agreements (DTA) Preferential rates

a Dividends
b Interests
c Royalties
d Profits of shipping and air transport in international traffic
e Remitted branch profits

Double Taxation Agreements (DTA) Exemption

a Business profits
b Capital gains
c Income from employment
d Income from independent professional services
e Income of athletes and performers supported by public funds
f Income from government service
g Pensions
h Income of visiting teachers and researchers
i Allowances and remuneration of visiting students and trainees
j Other income

Purpose of Taxation - Primary

to raise revenues

Purpose of Taxation - Secondary

a Regulatory b Compensatory

Inherent Powers of the State

a Taxation b Eminent domain c Police power

Theory and Basis of Taxation

a Lifeblood theory b Necessity theory c Benefits-Protection theory

Nature of Taxation

a Inherent power of the State b Legislative in character c Subject to inherent and Constitutional limitations

Characteristics of Tax

a Forced contribution b Generally payable in money c Levied for public purpose d Exclusively levied by legislature e Levied within territorial and legal jurisdiction of the state f Proportionate in character

Aspects of Taxation

1 Levying or Imposition 2 Assessment and Collection

Principles of Sound Tax System

a Fiscal adequacy b Theoretical justice (Equality) c Administrative feasibility

Classification of Taxes As to subject matter

a Personal, poll or capitation tax b Property tax c Excise tax

Classification of Taxes As to burden

a Direct tax b Indirect tax

Classification of Taxes As to taxing authority/jurisdiction

a National tax b Local tax

Classification of Taxes As to determination of amount

a Specific tax b Ad valorem tax

Classification of Taxes As to graduation or rate

a Proportional b Progressive c Regressive

Impositions other than taxes

a Toll b Penalty c Special assessment d License fee e Customs duty/tariff f Debt g Subsidy

Inherent Limitations

1 Public purpose 2 Non-delegability of the taxing power 3 Exemption of the government 4 International comity 5 Situs of taxation (Territoriality)

Situs of Taxation

Persons - Residence of the taxpayer
Real property - Location
Tangible personal property - Location
Intangible personal property - Domicile of the owner
Income - Residence, citizenship, source of income
Business - Place of business

Constitutional Limitations

1 Due process of law 2 Equal protection of law 3 Uniformity in taxation 4 Progressive system 5 Non-imprisonment for non-payment of poll tax 6 Non-impairment of obligations and contracts 7 Free worship clause 8 Exemption of religious, charitable, non-profit cemeteries and churches and mosque from property taxes 9 Exemptions from taxes of the revenues and assets of non-profit, non-stock educational institutions 10 Non-appropriation of public funds or property for the benefit of any church, sect, religion 11 No money shall be paid out of Treasury except in pursuance of an appropriation 12 Concurrence of majority of all the members of the Congress for the passage of law granting tax exemption 13 Non-diversification of tax collections 14 Non-impairment of the jurisdiction of the Supreme Court to review tax cases 15 Appropriation, revenue, tariff bills must originate from House of Representatives but the Senate may propose or concur with amendments 16 The President shall have the power to veto any particular item(s) in an appropriation, revenue or tariff 17 LGUs can create its own sources of revenues (delegation of taxing power to LGUs)

Escape from Taxation

a Tax evasion or Dodging b Tax minimization or Avoidance c Shifting d Capitalization e Transformation f Exemption

Sources of Tax Laws

a Constitution b Tax Code c Presidential Decrees/Statutes/Executive Orders (EOs) d Tax treaties f Court decisions g BIR rulings h Revenue issuances (Revenue regulations (RRs), Revenue memorandum orders (RMOs), Revenue memorandum circulars (RMCs)) i Local tax ordinances

Powers of the Commissioner

1 To interpret the provisions of the NIRC, subject to review by the Secretary of Finance 2 To decide tax cases, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals 3 To obtain information and to summon, examine and take testimony of persons to effect tax collection (subpoena) 4 To make assessment and prescribe additional requirements for tax administration and enforcement 5 To examine tax returns and determine tax due thereon 6 To conduct inventory taking or surveillance 7 To prescribe presumptive gross sales and receipts for a taxpayer when:
a The taxpayer failed to issue receipts
b The CIR believes that the books or other records of the taxpayer do not correctly reflect the declaration in the return
8 To terminate tax period when the taxpayer is
a Retiring from business
b Intending to leave the Philippines
c Intending to remove, hide, or conceal his property
d Intending to perform any act tending to obstruct the proceedings for the collection of the tax or render the same ineffective
9 To prescribe real property values
10 To compromise tax liabilities of taxpayers
11 To inquire into bank deposits, only under the following instances:
a Determination of the gross estate of a decedent
b To substantiate the taxpayer's claim of financial incapacity to pay tax in an application for tax compromise
12 To accredit and register tax agents
13 To refund or credit internal revenue taxes
14 To abate or cancel tax liabilities in certain cases
15 To prescribe additional procedures or documentary requirements
16 To delegate his powers to any subordinate officer with a rank equivalent to a division chief of an office

Classification of Individual Taxpayers

a Resident Citizen (RC) b Nonresident Citizen (NRC) c Resident Alien (RA) d Non-Resident Alien (NRA) Engaged in trade or business (ETB) e Not engaged in trade or business (NETB)

Nonresident Citizen (NRC)

1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner of the fact of his physical presence abroad with a definite intention to reside therein.
2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either an immigrant or for employment on a permanent basis.
3. A 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.
4. A citizen who has been previously considered as nonresident citizen who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall be considered a nonresident citizen for the taxable year in which he arrives in the Philippines with respect to income derived from sources abroad until the date of his arrival in the Philippines.

Resident Alien (RA)

1. An alien actually present in the Philippines who is not a mere transient or sojourner. A person who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient.
2. An alien, who comes to the Philippines for a definite purpose, which, by its nature, would require an extended stay making his home temporarily in the Philippines.
3. An alien who shall come to the Philippines with no definite intention as to his stay.

Situs of Taxation Subject Matter - Persons

Residence of the taxpayer

Situs of Taxation Subject Matter - Real property

Location

Situs of Taxation Subject Matter - Tangible personal property

Location

Situs of Taxation Subject Matter - Intangible personal property

Domicile (residence) of the owner

Situs of Taxation Subject Matter - Business

Place of business

Situs of Taxation Subject Matter - Service

Place of performance

Situs of Taxation Subject Matter - Shares of stocks

Nationality of the issuing corporation

Share in net income

Share in the distributable net income after tax of a partnership (except GPPs), associations, joint accounts, taxable joint ventures and consortiums 10% -RC, NCC, RA; 20%- NRA-ETB; 25%-NRA-NETB

On sale of shares of stock of a domestic corporation not listed and traded, held as capital asset (net capital gains)

15%

On sale of real property in the Philippines held as capital asset (higher of SP, FMV)

6%

Corporations - Classification

1 Domestic Corporation (DC) 2 Resident Foreign Corporation (RFC) 3 Non-resident Foreign Corporation (NRFC)

Basic Income Tax - Regular Corporate Income Tax (RCIT) - Rate

25%. Except: DCs with Net Taxable Income of P5M and below AND Total Assets (excluding land) of P100M and below :20%

Regular Corporate Income Tax (RCIT) - Base

Taxable income (DC and RFC), Gross income (NRFC)

Minimum Corporate Income Tax (MCIT) - Rate

2%. 1% from July 1, 2020 to June 30, 2023 (back to 2% starting July 1, 2023)

Minimum Corporate Income Tax (MCIT) - Base

Gross income

Final Withholding Tax

Interest on Philippine currency bank deposit, yield or other monetary benefit from deposit substitute, trust fund and similar arrangement 20% (DC and RFC), 25%(NRFC), (b) Interest on foreign currency deposit under the expanded 15% (DC and RFC), Exempt (NRFC), (c) Royalties from sources within the Philippines 20%(DC and RFC), 25%(NRFC)

Final Capital Gains Tax (CGT

(a)On sale of shares of stock of a domestic corporation 15%(DC, RCF and NRFC)not listed and traded, held as capital asset (net capital gains) (b)On sale of real property in the Philippines held as 6%(DC, RCF and NRFC)capital asset (higher of SP or FMV)

Special Corporations - Proprietary educational institutions and non-profit hospitals:

on net income if gross income from unrelated 10%(Domestic) trade, business, and other activities does not exceed 50% of the total gross income from all sources.

Rental Charters

Income of international carriers on their gross Philippine billings: 2.5% (RFC) Nonresident cinematographic film owner, lessor or distributor on gross income 25% (NRFC) Rentals, charters, and other fees derived by non-resident lessors of aircraft, machinery, and other equipment: 7.5% (NRFC) Rentals and charter fees payable to non-resident owners of vessels chartered by Philippine nationals: 4.5% (NRFC)

From - DC/RFC/NCC

To - RC, NRC, RA, NRA-ETB, NRA-NET. DC, RFC- 10% , tax table, tax table; 20%, tax table, ordinary income; 25%-2; Exempt, Exempt

Partnership, Co-Ownership, Joint Venture, Estate, Trust Partnership - General rule

Patnerships are taxable as corporation.

Exempt JVs

joint ventures or consortiums, Construction projects and Engaging in petroleum coal

Gross Income - Compensation for services in whatever form paid

fees, salaries, wages, commissions, and similar items

Gross Income - INCLUSIONS

1 Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items 2 Gross income derived from the conduct of trade or business or the exercsie of a profession 3 Gains derived from dealings in property 4 Interests 5 Rents 6 Royalties 7 Dividends 8 Annuities 9 Prizes and winnings* 10 Pensions 11 Partner's distributive share from the net income of the general professional partnership (GPP)

Prizes and winnings (Within)

Prizes is P10,000 and below: Tax table. Prizes more than P10,000 20% . Winnings PCSO and lotto not exceeding P10,000 :EXEMPT . PCSO and lotto exceeding P10,000 20% . Other winnings 20%

Prizes and winnings (Without)

Prizes is P10,000 and below: Tax table . Prizes more than P10,000 tax table . Winnings PCSO and lotto not exceeding P10,000 : N/A . PCSO and lotto exceeding P10,000 N/A . Other winnings tax table

Gross Income - EXCLUSIONS

1 Life insurance 2 Amount received by insured as return of premium 3 Gifts, bequests, and devises 4 Compensation for injuries or sickness 5 Income exempt under Treaty 6 Retirement benefits, pensions, gratuities 7 Miscellaneous items 8 Tax exempt income under RA 11494 (Bayanihan Act II) 9 Benefits received by government officials and employees are also not subject to income tax and withholding tax on compensation

Gross Income - 13th month pay and other benefits

the total exclusion shall not exceed P90,000

Deductions General Principles

a Ordinary and necessary b Paid or incurred within the taxable year c Connected with trade, business or practice of profession d Substantiated with official receipts or other adequate records e Not against the law, morals, public policy or public order f If subject to withholding taxes, proof of payment to BIR

Donations to foreign institution or international organization

deductible in full or international organization in pursuance of, or in compliance with agreements, treaties or special laws

Non-deductible taxes

Philippine income tax. Income tax paid to a foreign country if claimed as credit. Estate tax, Donor's tax, Special assessment, VAT, Stock transaction tax, Surcharges, penalties on delinquent taxes, Final taxes

Capital Assets - ORDINARY ASSETS

a Stock in trade of the taxpayer, or other property of a kind which would properly be included in the inventory of the taxpayer b Property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business c Property used in trade or business of a character which is subject to allowance for depreciation d Real property used in trade or business of the taxpayer

Examples of Ordinary Assets

Inventory - RM, WIP, FG (a) Land for sale by a real estate dealer or developer (b) Office equipment (c) Machinery (c) Building used in business (d) Land used in business (d)

Installment Reporting The gross profit or gain from the sale may be reported on the installment method

a One who is a dealer in personal property regularly selling on installments b One who makes a casual sale or disposition of personal property (other than inventory) for a selling price in excess of one thousand pesos (P1,000.00) and with initial payments not exceeding 25% of the selling price; or c One who makes a sale of real property, with initial payments not exceeding 25% of the selling price.

Senior Citizens Benefits

20% discount and exemption from Value Added Tax on certain goods and services for their own use

Void Donations

a Donations between spouses, except minor gifts b Donations between persons who were guilty of adultery or concubinage at the time of donation c Donations between persons found guilty of the same criminal offense, in consideration thereof d Donations to a public officer or his wife, descendants or ascendants by reason of his office e Donations to incapacitated persons f Donations of future property