FOR THE 12 OCTOBER 2014 BAR EXAMINA EXAMINATION TION
DOMONDON’S CUT AND PASTE VER. 2014-A
INCOME TAXATION During the Pre-Week !r"# O$t"%er & - 11 2014 '"u (" n"t h)*e the +u,ur' "! ti#e t" (" ) +eiure+ +eiure+' ' re)(ing re)(ing "! '"ur '"ur %""k )n( n"te. n"te. Thu Thu '"u h"u+( h"u+( %e *er' e+e$ti*e in the ue "! re*ie/ #)teri)+. D"#"n("n D"#"n("n CT AND AND PA3TE PA3TE /) 5e$i)++' 5re5)re( t" he+5 '"u !"$u "n the )re) th)t )re 5r"%)%+e "ur$e "! 6ueti"n t" %e gi*en (uring the 2014 B)r E,)#in)ti"n E,)#in)ti"n in T),)ti"n. T),)ti"n. The )re) /ere i(enti!ie( i(enti!ie( %' the )uth"r thr"ugh t)titi$)+ )n)+'i uing ()t) !r"# B)r E,)#in)ti"n 6ueti"n in T),)ti"n gi*en (uring the 5eri"( 17&4 u5 t" 2018. 9"u h"u+( n"te th)t D"#"n("n CT AND PA3TE /) 5re5)re( uing the 2014 $"*er)ge "! the B)r E,)# ) the %)i. F"r '"ur gui()n$e ("$trine $"nt)ine( in e+e$te( 3u5re#e C"urt (e$ii"n u5 t" M)r$h 81 2014 :i! )*)i+)%+e )n( )55+i$)%+e; )re )+" )+" in$+u(e(. in$+u(e(. F"r )re) )re) /ith"ut /ith"ut )n' )n' entrie entrie
0? t" 70? "! the 2014 B)r E,)#in)ti"n in T),)ti"n #)' %e "ur$e( !r"# thee )re). 9"u $"u+( CT the $"n$e5t )n( PA3TE PA3TE the# ) '"ur )n/er t" the B)r B)r @ueti"n. O! $"ure there there #)' %e ) nee( t" )(
2
Fin)++' the 5ur5"e "! D"#"n("n CT AND PA3TE i n"t t" te)$h '"u T),)ti"n %ut t" 5r"*i(e ) gui(e "n the )re) '"u h"u+( !"$u in "r(er t" en)%+e '"u t" 5) 5) the B)r E,)#in E,)#in)ti )ti"n "n )n( %e )#"ng )#"ng the TOP TOP TEN B)r 5)e 5)er. r. A(*)n A(*)n$e $e $"ngr)tu+)ti"n )n( ee '"u ""n in $"urt ) ) !e++"/ +)/'er.
A,EARDO T. DOMONDON M)gni!i$u N". u+' 2014 e"n Den Big)in It 3)n "e B)t)ng)
1) %nder t"e sc"edular treatment t"ere are different tax rates &'I under t"e $loal treatment t"ere is a unitary or sin$le tax rate* +) %nder t"e sc"edular treatment t"ere are different cate$ories of taxale income &'I under t"e $loal treatment t"ere is no need for classification as all taxayers are su-ected to a sin$le rate* ) /"e sc"edular treatment is usually used in t"e income taxation of individuals &'I t"e $loal treatment is usually alied to cororations.
/"is is a rincile in income taxation 2"ere t"e income follo2s t"e income earner. earner. /"e income is t"us taxed in t"e lace 2"ere t"e o2ner (income earner) is located and not in t"e lace 2"ere t"e income is earned or 2"ere t"e income ori$inated. /"is alies to resident citi4ens on t"eir incomes derived from sources 2it"out t"e "iliines. 6NIRC of 1997, !ec. + (A)
3 A resident citi4en is $iven rotection y t"e "iliines no matter 2"ere "e is found or no matter 2"ere "e earns "is income. 'e is t"erefore oli$ated oli$ated to suort t"e "iliines, "iliines, in exc"an$e exc"an$e for t"e rotection "e receives. receives. It 2ould aear from t"is concet t"at t"e tan$ile roerties of non#resident alien decedents t"at are "ysically located located in t"e "iliines do not form art of t"eir $ross estate located in t"e "iliines. "iliines. /"is is so ecause t"e tan$ile ersonal roerty follo2s t"e residence of t"e decedent 2"ic" is located outside of t"e "iliines. /"us, t"ey do not "ave tan$ile ersonal roerties located located in t"e "iliines for uroses of estate taxation.
/"e taxale eriod eriod comrisin$ t"e t"e t2elve (1+) consecutive consecutive mont"s mont"s from on Audit rocedures and /ec"ni5ues /ec"ni5ues ? @olume I (Revision +), C"ater @.:, @.:, . 1, renumered
1)
+)
If a taxay taxayer er,, ot"e ot"err t"an t"an an an indi individ vidual ual,, c"an c"an$es $es its accoun accountin tin$$ erio eriodd a) from from fis fiscal cal ye year to ca calend lendar ar year, ar, ) from from cale calend ndar ar year ear to fisc fiscal al year year,, or c) from from one one fis fiscal year to anot anot"e "err, t"e net income s"all, a) 2it" 2it" t"e t"e ar arov oval al of t"e t"e Com Commi miss ssio ione nerr of Internal Revenue, ) e com comut uted ed on t"e t"e asi asiss of of suc suc"" ne2 ne2 acco accoun untitin$ n$ eri eriod od c) su-ect to to t" t"e r rovisionsB for filin$ of returns for s"ort eriod resultin$ from c"an$e of
accountin$ eriod. (NIRC of 1997, !ec. 8=, arran$ement, numerin$, 2ords in italics and ara"rasin$ sulied N/! AN3 CDDN/!; CDDN/!; nly a cororation may c"an$e its accountin$ accountin$ eriods ut al2ays su-ect su-ect to t"e aroval of t"e Commissioner of Internal Revenue and comliance 2it" t"e re5uirements for filin$ returns for s"ort eriod resultin$ from c"an$e of accountin$ eriod. An individual taxayer cannot c"an$e "is accountin$ eriod ecause "e is allo2ed only o ne, t"e calendar year.
&"en it s"all come to t"e >no2led$e of t"e Commissioner t"at a taxayer 1) is reti retiri rin$ n$ from from usi usine ness ss susu-ec ectt to to tax tax,, or or +) is inte intend ndin in$$ to to lea leave ve t"e t"e "i "ilili in ines es or ) to remo remove ve "is "is roer roerty ty t"er t"erefr efrom om or or to "ide "ide or conc conceal eal "is roer roerty ty,, or or 8) is er erfform ormin$ any any act act tend tendiin$ to to a) ostru ostruct ct t"e t"e roce roceedi edin$s n$s for t"e t"e coll collect ection ion of t"e t"e tax for t"e t"e ast ast or curr current ent 5uar 5uarter ter or year or
4 ) to rend render er t"e same same tota totallllyy or artly artly inef ineffe fect ctiv ivee unles unlesss suc" suc" roce roceed edin in$s $s are are e$un e$un immediately, (NIRC of 1997, !ec. = (3), arran$ement and numerin$ sulied
1) A non#resident non#reside nt alien individual +) 2"o s"all come to t"e "iliines ) and stays t"erein for an a$$re$ate eriod of more t"an 1F days durin$ any calendar year. 6NIRC of 1997, !ec. + (A) (1) in relation to !ec. ++ (G) 8) not2it"standin$ not2it"standin$ t"e definition of a non#resident alien under !ec. ++ (G). (Iid.)
)
s"all e deemed a nonresident alien doin$ usiness in t"e "iliines. "iliines.
(Iid.)
/"e term minimum minimum 2a$e earnerH earnerH s"all refer to a 2or>er in t"e rivate sector aid t"e statutory minimum 2a$e* to an emloyee in t"e ulic sector 2it" comensation income of not more t"an t"e statutory minimum 2a$e in t"e non#a$ricultural sector 2"ere "es"e is assi$ned . 6NIRC of 1997, !ec. ++ (''), as added y Re. Act No. 98 /"e term Jstatutory minimum 2a$eH earner s"all refer to rate fixed y t"e Re$ional /riartite &a$e and roductivity :oard, as defined y t"e :ureau of aor mloyment !tatistics (:!) of t"e 3eartment of aor and mloyment (3). 6NIRC of 1997, !ec. ++ (GG), as added y Re. Act No. 98
1) +) ) 8)
/"e term JcororationH s"all include; artners"is, no matter "o2 created or$ani4ed, -oint stoc> comanies, -oint accounts (cuentas en articiacion articiacion ), ), ass associ ociati ations ons or or ins insur uran ancce com coma ani nie. 6NIRC of 1997, !ec. ++ (:), 1st sentence
N/! AN3 CDDN/!; 0or tax uroses, all t"e fore$oin$ are considered as cororations,
1) +) )
$ene $enera rall rof rofes essi sion onal al art artne ners rs"i "is s and and a -oint n t ventur nturee or consor nsortitium um form ormed for for ur uro ose se of unde undert rta> a>in in$$ con const stru ruct ctio ionn ro ro-e -ect ctss
5 8)
or en$a$in$ in a) etroleum, ) coal, c) $eot"ermal, and d) ot"er ener$y oerations, ursuant to (1) (1) an oe oera ratition on or or con conso sort rtiu ium m a$r a$ree eeme ment nt (+) (+) unde underr a serv servic icee cont contra ract ct 2it 2it"" t"e t"e Gove Govern rnme ment nt.. 6 NIRC of 1997, !ec. ++ (:), 1st sentence, arran$ement and numerin$ sulied
Generally understood to mean an or$ani4ation formed for some temorary urose. ("ilex Dinin$ Cororation v. Commissioner Commissioner of Internal Revenue, G. R. No. 18F1F7, Aril 1=, +F)
0or examle; A:C, Inc., and KLM Cororation, Cororation, 2it"out formin$ a cororation, cororation, a artners"i or ot"er reco$ni4ale usiness or$ani4ation, a$reed to -oin to$et"er to construct a storey uildin$. After comletion comletion of t"e uildin$ t"en t"ey $o t"eir t"eir searate 2ays a$ain. /"ey are said to "ave entered entered into a -oint venture a$reement (<@A). A -oint venture is considered as a artners"i. A -oint venture is "ardly distin$uis"ale distin$uis"ale from t"e artners"i, since t"eir elements are similar ? community of interest in t"e usiness, s"arin$ of rofits and losses, and a mutual ri$"t of control .B ("ilex Dinin$ Cororation v. Commissioner Commissioner of Internal Revenue, G. R. No. 18F1F7, Aril 1=, +F) N/! AN3 CDDN/!; Conse5uently, t"e -oint venture is su-ect to tax as if it is a cororation. In t"is case t"ere 2ould 2ould e t2o levels of taxation. taxation. /"e -oint venture venture 2ould su-ect su-ect to tax as if it is a cororation. If t"ere are rofits distriuted t"ey are considered as dividends and taxale as suc".
1) +)
A -oint -oint venture or consortium consortium formed for for ur uro ose se of unde undert rta> a>in in$$ con const stru ruct ctio ionn ro ro-e -ect ctss or en$a$in$ in a) etroleum, ) coal, c) $eot"ermal, and d) ot"er ener$y oerations, ursuant to 1) an oer oerat atio ionn or conso onsort rtiu ium m a$re a$reem emen entt +) unde underr a ser servi vice ce contr ontrac actt 2it 2it"" t"e t"e Gover overnm nmen ent. t. 6 NIRC of 1997, !ec. ++
:), 1st sentence, arran$ement and numerin$ sulied N/! AN3 CDDN/!; CDDN/!; /"e -oint venture itself itself is not considered considered as if it is a cororation, "ence not taxale as suc". 'o2ever, once t"ere is a distriution of earnin$s to t"e memers of t"e -oint venture, t"ey s"all e taxale searately on t"e earnin$s t"ey receive.
A -oint venture or consortium formed for t"e urose of underta>in$ construction ro-ects not considered as cororation under !ec. ++ of t"e NIRC of 1997 as amended, s"ould e; 1) for for t"e t"e unde undert rta> a>in in$$ of of a cons constr truc uctition on roro-ec ect* t* and and
6 +) s"oul s"ouldd involv involvee -oinin -oinin$$ or ooli oolin$ n$ of reso resourc urces es y lice license nsedd local local contr contrac actor tors* s* t"at t"at is, is, licensed licensed as $eneral $eneral contracto contractorr y t"e "ilii "iliine ne Contracto Contractors rs Accredi Accreditatio tationn :oard :oard (CA:) (CA:) of t"e 3eartment of /rade and Industry (3/I)* ) t"ese t"ese local local contr contract actors ors are en$a$e en$a$edd in in cons constru tructi ction on usin usiness ess** and and 8) t"e t"e e2 li>e2is isee e duly duly licen license sedd as suc" suc" y t"e "il "ili ii ine ne Accreditation Accreditation :oard (CA:) of of t"e 3eartment of of /rade and and Industry (3/I). no2n >no2n as ContractorHs icense icense a2. a2. Asent any one of t"e aforesaid re5uirements, re5uirements, t"e -oint venture or consortium formed for t"e urose of underta>in$ construction ro-ects s"all e considered as taxale cororations. In addition, t"e tax#exemt -oint venture or consortium "erein defined s"all not include t"ose 2"o are mere suliers of $oods, services or caital to a construction ro-ect. /"e memers to a
/"ese are usiness artners"is or artners"is 2"ic" are or$ani4ed for t"e urose of en$a$in$ in trade or usiness. /"ey are su-ect to income tax as if t"ey are cororations, 2"et"er or not re$istered 2it" t"e !ecurities and xc"an$e Commission Commission as a artners"i. Re$istration of a usiness artners"i artners"i 2it" t"e !C is an indication indication of its taxale c"aracter. A $eneral rofessional artners"i as suc" s"all not e su-ect to income taxes. (NIRC of 1997, !ec. +=, 1 sentence) A $eneral rofessional artners"i is deemed to e no more t"an a mec"anism or flo2#t"rou$" entity in t"e $eneration of income y, and t"e ultimate distriution of income to, resectively, eac" of t"e individual artners. (/an v. st
3el Rosario,
1) Article 17=9() of t"e Civil Code rovides t"at, /"e s"arin$ of $ross returns does not of itself estalis" a artners"i, 2"et"er or not t"e ersons s"arin$ t"em "ave a -oint or common ri$"t or interest in any roerty from 2"ic" t"e returns are derived.B /"ere must e an unmista>ale unmista>ale intention to form a artners"i or -oint venture . (illos, ale unmista>ale intention to form a artners"i or -oint venture. /"ere is no contriution or investment of
7 additional caital to increase or exand t"e in"erited roerties, merely continuin$ t"e dedication of t"e roerty to t"e use to 2"ic" it "ad een ut y t"eir foreears. (illos,
) ersons 2"o contriute roerty or funds to a common enterrise and a$ree to s"are t"e $ross returns of t"at enterrise in roortion to t"eir contriution, ut 2"o severally retain t"e title to t"eir resective contriution, are not t"erey rendered artners. /"ey "ave no common stoc> caital, and no community of interest as rincial rorietors in t"e usiness itself 2"ic" t"e roceeds derived. (lements of t"e a2 of artners"i y 0loyd R. Dec"em, +nd d., d., secti section on F, . 78 cite citedd in ascual v. Commissioner of Internal Revenue, 1==!CRA =)
8) /"e common o2ners"i of roerty does not itself create a artners"i et2een t"e o2ners, t"ou$" t"ey may use it for urose of ma>in$ $ains. /"ey may, 2it"out 2it"out ecomin$ artners, are amon$ t"emselves co#o2ners as to t"e mana$ement and use of suc" roerty and t"e alication of (!ur .&. =, 1= No. A. . 18. Iid ) !urlo loc> c> v. &ils &ilson on,, 18+ !.&. t"e roce roceeds eds t"eref t"erefrom rom.. ) A -oint urc"ase of land, y t2o, does not constitute a co#artners"i in resect t"ereto, nor does an a$reement to s"are t"e rofits and losses on t"e sale of land create a artners"i* 117 cited t"e arties are only tenants in common. (Clar> v. !ide2ay, 18+ %.!. =F+, 1+ !. Ct. +7, . d., 117 in ascual v. Commissioner of Internal Revenue, 1== !CRA = )
=) &"ere laintiff, "is rot"er, and anot"er a$reed to ecome o2ners of a sin$le tract of realty "oldin$ as tenants in common, and to divide t"e rofits of disosin$ of it, t"e rot"er and t"e ot"er not ein$ entitled to s"are in laintiffHs commissions, commissions, no artners"i existed as et2een t"e t"ree arties, 2"atever t"eir relation may "ave een as to t"ird arties. (Da$ee v. Da$ee, 1+ N.. =7, + Dass. 81, Iid.)
1) and +) ) )
A
of t"e "iliines t"erein is taxale on income derived from sources t"e "iliines* A is taxale only on derived from sources t"e "iliines* An of t"e "iliines 2"o is 2or>in$ and derivin$ income aroad as an is taxale only on from sources t"e "iliines; rovided, /"at a 2"o is a citi4en of t"e "iliines and 2"o receives comensation comensation for services rendered aroad as a memer of t"e comlement of a vessel en$a$ed exclusively in international trade s"all e treated as an * 8) An 2"et"er a of t"e "iliines, is taxale only on derived from sources t"e "iliines* "iliines* ) A is taxale on all derived from sources and t"e "iliines* and =) A , 2"et"er en$a$ed or not in trade or usiness in t"e "iliines, is taxal taxalee only only on derived from source sourcess t"e "iliines. (NIRC of 1997, !ec. +, em"asis, arran$ement and numerin$ sulied)
arnin$s arnin$s,, in t"e form of money money comin$ comin$ to a erson erson or cororati cororation, on, 2"et"er 2"et"er as ayment ayment for services services,, interest interest or rofit rofit from investment investment.. la2fully la2fully or unla2ful unla2fully ly ac5uired, ac5uired, 2it"out 2it"out consensual consensual reco$nition, exress or imlied, of an oli$ation to reay and 2it"out restriction as to t"eir disosition.
8
1) Advance ayments or deosits for ayments. +) roerty received as comensation ut su-ect to forfeiture. ) Assessments Assessments for additional cororate contriutions. contriutions. 8) Increments resultin$ from revaluation of roerty. ) arent cororationHs s"are in t"e accumulated accumulated and current e5uity on susidiariesH susidiariesH net earnin$s rior to distriution. =) Doney earmar>ed for some ot"er ersons not included in $ross income. (@isayan Ceu /erminal Co., Inc. v. Commissioner, 1 !CRA 7)
7) F)
Doney or r roerty orro2ed. Incr Increa ease se in net net 2ort 2ort"" resu resultltin in$$ from from adad-us ustitin$ n$ ent entriries es..
1) +)
If actually or "ysically "ysically received y taxayer* or If constructively constructi vely received y taxayer. (RR No. +, !ec. +) 1) +)
Actual receit receit may e "ysical re receit Asia :an>in$ Cororation v. Commissioner Commissioner of or constructive receit. ( Asia
Internal Revenue, G. R. No. 18F7, !etemer +7, +=
Construct Constructive ive receit receit occurs occurs 2"en money consideration or its e5uivalent is laced at t"e control of t"e erson 2"o rendered t"e service 2it"out restriction y t"e ayor. (RR No. 1=#+, !ec. 1F#A) /"e follo2in$ are examles of constructive receit; 1) 3eo 3eosi sitt in an>s an>s 2"i 2"ic" c" are are made made avail availa ale le to t"e t"e sell seller er of ser servi vice cess 2it" 2it"ou outt restrictions. +) Issu Issuan ancce y t"e det detor or of a notic noticee to offse offsett any de dett or oli$ oli$at atio ionn and accetance t"ereof y t"e seller as ayment for services rendered. ) /rans /ransfer fer of of t"e amount amountss retai retained ned y y t"e t"e ayor ayor to t"e accoun accountt of t"e t"e cont contrac ractor tor.. (RR No. 1=#+, !ec. 8 1F#A, renumered)
8) Interest Interest couons couons t"at "ave matured matured and are ayale ayale ut "ave not een cas"ed. ) %ndistriuted %ndistriuted s"are of a artner in t"e rofits of a $eneral artners"i. =) It 2as 2as once once "eld t"at t"ere 2as construct constructive ive receit receit of income income 2"ere t"e income 2as alied in ayment of dets le$ally demandale and c"ar$eale to t"e taxayer. (Reulic v. dela Rama, et al., 1+8 "il. 189)
7) 3ivi 3ivide dend ndss set set off a$ai a$ains nstt valid valid det detss in favo favorr of t"e cor coror orat atio ion, n, ut ut not if t"e t"e dets are not valid or are controversial. (Iid.)
9
It is also referred to as t"e cas" receits and disursements met"odB ecause ot" t"e receit and disursements are considered. /"us, /"us, income income is reco$ni4e reco$ni4edd only uon actual actual or construct constructive ive receit receit of t"e cas" ayment or roerty ut no deductions are allo2ed from t"e cas" income unless actually disursed t"rou$" an actual or constructive ayment in cas" or roerty. 6C"ater II.A., :IR 'andoo> on Audit rocedures and /ec"ni5ues ? @olume I (Revision +), .
/"is is a met"od of accountin$ for income in t"e eriod it is earned, earned, re$ardless of 2"et"er 2"et"er it "as een received or not. In t"e same manner, exenses exenses are accounted for in t"e eriod t"ey are incurred and not in t"e eriod /ec"ni5ues, C"ater II.:, @olume I (Revision t"ey are aid. 6:IR 'andoo> on Audit rocedures and /ec"ni5ues, +), .
/"is met"od is considered aroriate 2"en collections extend over relatively lon$ eriods of time and t"ere is a stron$ ossiility t"at full collection 2ill not e made. As customers customers ma>e installment ayments, ayments, t"e seller reco$ni4es t"e $ross 6'andoo> on Audit rocedures and /ec"ni5ues, C"ater II. rofit on sale in roortion to t"e cas" collected. collected. , Accountin$ Det"ods, @olume I, (Revision +), , . #8
In t"e case of lon$#term contracts involvin$ ,AR uildin$, installation or construction contracts coverin$ a eriod in excess of one (1) year, ersons 2"ose $ross income is derived from suc" contracts s"all reort suc" income uon t"e asis of ercenta$e of comletion. (NIRC of 1997, !ec. 8F)
%nder t"e reali4ation rincile, revenue is $enerally reco$ni4ed 2"en ot" of t"e follo2in$ conditions are met; 1) /"e earnin$ rocess is comlete or virtually comlete, and +) an exc"an$e "as ta>en lace. /"is rincile re5uires t"at revenues must e earned efore it is recorded . (Danila Dandarin 'otels, Inc. v. /"e Commissioner of Internal Revenue, C/A Case No. 8=, Darc" +8, 1997)
0or a taxayer usin$ t"e accrual met"od, t"e determinative 5uestion is, 2"en do t"e facts resent t"emselves in suc" a manner t"at t"e taxayer must reco$ni4e income of exenses O /"e accrual of income and exenses exenses is ermitted 2"en 2"en t"e all events test "as een met. /"is test re5uires; 1) fixi fixin$ n$ of a ri$ ri$"t "t to inco income me or lia liaililitityy to to ay ay** and and +) t"e ava availa ilail ility ity of of t"e reas reasona onale le acc accura urate te deter determin minati ation on of suc" suc" inco income me or lia liaili ility ty.. 'o2ever, t"e test does not demand t"at t"e amount of income or liaility e >no2n asolutely, only t"at a taxayer "as at "is disosal t"e information necessary to comute t"e amount 2it" reasonale accuracy. /"e all#events test is satisfied 2"ere comutation remains uncertain, if its asis is unc"an$eale* t"e test is
10 satisfied 2"ere a comutation may e un>no2n, ut is not as muc" as un>no2ale, 2it"in t"e taxale year. /"e amount of liaility does not "ave to e determined exactly* it must e determined 2it" Jreasonale accuracy.H accuracy.H Accordin$ly, Accordin$ly, t"e term Jreasonale accuracyH accuracyH imlies somet"in$ less t"an an exact or comletely ( Commissioner of Internal Revenue v. Isaela Cultural Commission, G. R. No. 17++1, 0eruary 1+ accurate amount.H +7)
Gross income means all income derived from 2"atever source . 6NIRC of 1997, !ec. + (A), ara"rasin$ sulied In$"#e !r"# )n i++eg)+ i++eg)+ %uine i u%
A final tax of t"irty#t2o ercent ercent (+P) of t"e $rossed#u monetary value of frin$e enefits furnis"ed or $ranted to t"e emloyee (excet ran> and file emloyees) y t"e emloyer, 2"et"er an individual or a cororation (unless t"e frin$e enefit is re5uired y t"e nature of, or necessary to t"e trade, usiness or rofession of t"e emloyee, or 2"en t"e frin$e enefit is for t"e convenience or advanta$e of t"e emloyer). 6NIRC of 1997, !ec. (A) 0or uroses of alyin$ frin$e enefit taxation, frin$e enefit means any $ood, service or ot"er enefit furnis"ed or $ranted in cas" or in >ind y an emloyer to an individual emloyee emloyee (excet ran> and file emloyees), suc" as ut not limited to; 1) 'ousin$. +) xense account. ) @e"icle of any >ind. 8) 'ouse"old ersonnel, suc" as maid, driver and ot"ers. ) Interest on loan at less t"an mar>et rate to t"e extent of t"e difference et2een t"e mar>et rate and actual rate $ranted. =) Demers" Demers"i i fees, fees, dues and ot"er exenses exenses orne orne y t"e emloyer emloyer for t"e emloyee in social and at"letic clus or ot"er similar or$ani4ations. 7) xenses for forei$n travel. F) 'oliday and vacation exenses.
11 9) ducational assistance assistance to t"e emloyee or "is deendents. 1) ife or "ealt" "ealt" insurance insurance and ot"er non#life non#life insuranc insurancee remiums remiums or similar similar +. (:) amounts in excess of 2"at t"e la2 allo2s. 6NIRC of 1997, !ec. (:)* RR No. #9F, !ec. +.
1) a) ml mloy oyer er leas leases es resi reside dent ntia iall ro roer erty ty for for use use of t"e t"e eml emloy oyee ee.. ) mlo mloyer yer o2ns o2ns a reside residenti ntial al roer roerty ty and assi$ assi$ns ns t"e same same for use y t"e emloyee. c) ml mloy oyer er urc urc"a "ase sess a resi reside dent ntia iall ro roer erty ty on inst instal allm lmen entt asi asiss and and allo2s use y t"e emloyee. d) ml mloy oyer er urc urc"a "ase sess a resi reside dent ntia iall ro roer erty ty and and tran transf sfer erss o2ne o2ners rs"i "i to t"e emloyee. e) /"e emlo emloyer yer rovi rovides des a mont mont"ly "ly fixed fixed amo amount unt for t"e emlo emloye yeee to ay "is landlord +) In $eneral, exenses incurred y t"e emloyee ut 2"ic" are aid y "is emloyer s"all e treated as taxale frin$e enefits, excet 2"en t"e exenditures are duly receited for and in t"e name of t"e emloyer and t"e exenditures do not arta>e of t"e nature of a ersonal exense attriutale to t"e emloyee.B 6RR No. #9F, !ec. +. (3) (+) (a) a) xenses aid for y t"e emloyee ut reimursed y "is emloyer s"all e treated as taxale enefits excet only 2"en t"e exenditures are duly receited for and in t"e name of t"e emloyer and t"e exenditures do not arta>e t"e nature of a ersonal exense attriutale to t"e said emloyee.B 6RR No. #9F, !ec. +. (3) (+) () ) ersonal exenses of t"e emloyee (li>e urc"ases of $roceries for t"e ersonal consumtion of t"e emloyee and "is family memers) aid for or reimursed y t"e emloyer to t"e emloyee s"all e treated as taxale frin$e enefits of t"e emloyee 2"et"er or not t"e same are duly receited for in t"e name of t"e emloyer.B 6RR. No. #9F, !ec. +. (3) (+) (c) ) a) mloyer urc"ases ve"icle in emloyeeHs name. ) mloyer mloyer rovides emloyee cas" for ve"icle urc"ase. c) mloyer urc"ases car on installment in name of emloyee. d) mloyer mloyer s"oulders a ortion of urc"ase rice. e) mloyer mloyer o2ns and maintain maintainss a fleet fleet of motor motor ve"icles ve"icles for use of usiness and emloyees. f) mloyer leases and maintains a fleet of motor ve"icles for t"e use of t"e usiness and emloyees. /"e use of yac"t 2"et"er o2ned and maintained or leased y t"e emloyer s"all s"all e treated as taxale frin$e enefit. /"e value of t"e enefit s"all e measured ased on t"e dereciation of a yac"t at an estimated useful life of + years.B 6RR No. #9F, !ec. +. (3) () (") xense xensess of t"e emloyee 2"ic" are orne y t"e emloyer for "ouse"old ersonnel, suc" as salaries of "ouse"old "el, ersonal driver of t"e emloyee, or ot"er similar ersonal exenses (li>e ayment for "omeo2ners association dues, $ara$e dues, etc.) s"all e treated as taxale frin$e enefits.B 6RR No. #9F, !ec. +. (3) (8) If t"e emloyer lends money to "is emloyee free of interest or at a rate lo2er t"an t2elve er cent (1+P), suc" interest fore$one y t"e emloyer or t"e difference of t"e interest assumed
12 y t"e emloyee and t"e rate of t2elve er cent (1+P) s"all e treated as a taxale frin$e enefit.B 6RR No. #9F, !ec. +. (3) () (a) Demers"i fees, dues, dues, and ot"er exenses orne y t"e emloyer for "is emloyee, in social and at"letic clus or ot"er similar or$ani4ations s"all e treated as taxale frin$e enefits of t"e emloyee in full. 6RR. No. #9F, !ec. +. (3) (= In t"e asenc asencee of docume documenta ntary ry evide evidence nce s"o2i s"o2in$ n$ t"at t"at t"e emlo emloye yeeHs eHs travel travel aroad aroad 2as in connection 2it" usiness meetin$s or conventions, t"e entire cost of t"e tic>et, includin$ cost of "otel accommodations and ot"er exenses incident t"ereto s"ouldered y t"e emloyer, emloyer, s"all e treated as taxale taxale frin$e enefits. /"e usiness meetin$s s"all e evidenced y official communications from usiness associates aroad indicatin$ t"e urose of t"e meetin$s. :usiness conventions s"all e evidenced y official invitations communications communications from t"e "ost "ost or$ani4ation or entity aroad. t"er2ise, t"e entire cost t"ereof s"ouldered y t"e emloyer s"all e treated as taxale frin$e enefits of t"e emloyee.B 6RR No. #9F, !ec. +. (3) (7) (), /ravellin$ exenses 2"ic" are aid y t"e emloyer for t"e travel of t"e family memers of t"e emloyee s"all e treated as taxale frin$e enefits of t"e emloyee.B 6RR No. #9F* !ec. +. (3) (7) (c)
'oliday and vacation exenses of t"e emloyee orne y "is emloyer s"all e treated as taxale frin$e enefits.B 6RR No. #9F, !ec. +. (3) (F), /"e cost of t"e educational assistance to t"e emloyee 2"ic" are orne y t"e emloyer s"all, in $eneral, e treated as taxale frin$e enefit.B 6RR No. #9F, !ec. +., (3) (9) (a), 1 st sentence
/"e cost of educational assistance extended y an emloyer to t"e deendents of an emloyee s"all e treated as taxale taxale frin$e enefits of t"e emloyee xxx .B 6 Iid., !ec. +. (3) (9) (), ara"rasin$ sulied
/"e cost of life or "ealt" insurance and ot"er non#life insurance remiums remiums orne y t"e emloyer for "is emloyee s"all e treated as taxale frin$e enefit, excet t"e follo2in$; a) Contriutions of t"e emloyer for t"e enefit of t"e emloyee, ursuant to t"e rovisions of existin$ la2, suc" as under t"e !ocial !ecurity (!!!) (Re. Act No. F+F+, as amended) or under t"e Government !ervice Insurance !ystem (G!I!) (Re. Act No. F+91), or similar contriutions arisin$ arisin$ from t"e rovisions of any ot"er existin$ la2* and ) /"e cost of remiums orne y t"e emloyer for t"e $rou insurance of "is emloyees. 6RR No. #9F, !ec. +. (3) (1), arran$ement sulied N/! AN3 CDDN/!; If t"e reciient of t"e frin$e enefit, t"at is not exemt, is a non#ran> and file emloyee (mana$erial or suervisory) it may e su-ect to t"e frin$e enefit tax to e aid y t"e emloyer. If t"e reciient is a ran> and file emloyee, t"e monetary value s"all e considered as art of t"e comensation income of t"e emloyee for 2"ic" "e "as to ay t"e corresondin$ tax.
1) a) 'ou 'ousi sin$ n$ rivi rivile le$e $e of milit militar aryy offi offici cial alss of t"e t"e Arme Armedd 0orc 0orces es of t"e "iliines (A0) consistin$ of officials of t"e "iliine Army, "iliine Navy and "iliine Air Air 0orce s"all not e treated as taxale frin$e enefit in accordance 2it" t"e existin$ doctrine t"at t"e !tate s"all rovide its soldiers 2it" necessary 5uarters 2"ic" are 2it"in or accessile accessile from t"e military cam so t"at t"ey can readily readily e on call to meet t"e exi$encies exi$encies of t"eir military service.B service.B 6NIRC of 1997, !ec. +. (3), (1) (f) ) A "ousin$ unit 2"ic" is situated inside or ad-acent to t"e remises of a usiness or factory s"all not e considered as a taxale frin$e enefit. enefit. A "ousin$ "ousin$ unit is considered ad-acent to t"e remises of t"e usiness if it is located 2it"in t"e
13 maximum of fifty () meters from t"e erimeter erimeter of t"e usiness remises.B remises.B 6RR No. # 9F, !ec. +. (3) (1) ($)
+) /"e use of aircraft (includin$ "elicoters) "elicoters) o2ned and maintained y t"e emloyer s"all e treated as usiness use and not e su-ect to t"e frin$e enefits tax.B 6RR No. #9F, !ec. +. (3) () ($) ) Reasonale usiness exenses exenses 2"ic" are aid for y t"e emloyer for t"e forei$n travel of "is emloyee for t"e urose of attendin$ usiness meetin$s or conventions s"all not e treated as taxale frin$e enefits. In t"is instance, inland travel exenses (suc" as exenses for food, evera$es and local transortation) excet lod$in$ cost in a "otel (or similar estalis"ments) amountin$ to an avera$e of %!Q. or less er day, s"all not e su-ect to a frin$e enefit tax. /"e exenses s"ould s"ould e suorted y documents rovin$ t"e actual occurrences occurrences of t"e meetin$s or conventions. conventions. /"e cost of economy and usiness class airlane tic>et tic>et s"all not e su-ect to a frin$e enefit tax. 'o2ever, ercent of t"e cost of first class airlane tic>et tic>et s"all e su-ect to a frin$e enefit tax.B 6RR No. #9F, !ec. +. (3) (7) (a) 8) A sc"olars"i sc"olars"i $rant to t"e emloyee y t"e emloyer s"all not e treated as taxale frin$e enefit if t"e education or study involved is directly connected connected 2it" t"e emloyerHs trade, usiness or rofession, and t"ere is a 2ritten contract et2een t"em t"at t"e emloyee is under oli$ation to remain in t"e emloy of t"e emloyer for t"e eriod of time t"at t"ey "ave mutually a$reed uon. uon. In t"is case, t"e exenditure exenditure s"all e treated as incurred !ec. for t"e convenience and furt"erance of t"e emloyerHs trade or usiness .B 6RR No. #9F, !ec. +. (3) (9) (a), + nd and rd sentences
) a) 0rin$e enefits 2"ic" are aut"ori4ed and exemted from tax under t"e NIRC of 1997 or secial la2s* ) Contriut Contriutions ions of t"e emloyer emloyer for t"e enefit enefit of t"e emloyee emloyee to retirement, insurance and "ositali4ation "ositali4ation enefit lans* c) :enefits $iven to t"e ran> and file emloyees, emloyees, 2"et"er $ranted under a collective ar$ainin$ a$reement or not* and d) 3e minimis enefits as defined in t"e rules and re$ulations to e romul romul$at $ated ed y t"e !ecre !ecretar taryy of 0inanc 0inancee uon uon recomm recommend endati ation on of t"e Commissioner Commissioner of Internal Revenue. Revenue. 6 NIRC of 1997 !ec. + (C)* RR No. #9F, !ec. +. (C)
/"ese are t"e $ains, returns and revenue derived from t"e ractice of a rofession. rofession. rofessional rofessional income does not not include 6NIRC of 1997, !ec. ++ (:), last sentence, em"asis sulied N/! AN3 CDDN/!; CDDN/!; /"ere is need to se$re$ate t"e rofessional rofessional income income from income derived from usiness usiness in t"e case of a $eneral rofessional rofessional artners"i artners"i (G). (G). /"is is so ecause t"e rofessional income income earned y t"e $eneral rofessional artners"i is not taxale "ence t"e G does not file an income tax return ut an information return. n t"e ot"er "and, t"e income from usiness of a G is taxale ecause t"e G is $oin$ to e considered as a artners"i en$a$ed in usiness taxale as a cororation.
/"ese are t"e $ains, returns and revenue derived from a Btrade or commercial activity re$ularly en$a$ed in as a means of liveli"ood or 2it" a vie2 to rofit.B (Lamane , etc. v. :A eanto Condominium Cororation, G. R. No. 1899, ctoer +, +)
/"e amounts aid in as dues or fees y memers and tenants of a condominium condominium cororation form art of t"e $ross income of t"e latter su-ect to income tax. /"is is ecause a condominium cororation furnis"es its memers and tenants 2it" enefits, advanta$es and rivile$es in exc"an$e for suc" ayments. ayments. 0or tax uroses uroses,, t"e associatio associationn dues, dues, memers" memers"i i fees, and ot"er ot"er assessme assessmentsc ntsc"ar$e "ar$ess collected y a condominium condominium cororation constitute income ayments or comensation comensation for eneficial services it
14 rovides to its memers and tenants. tenants. /"e revious revious interretation interretation t"at t"e t"e association association dues are funds 2"ic" are merely "eld in trust y a condominium cororation cororation lac>s le$al asis and is "erey aandoned. aandoned. Doreover, since since a condominium cororation cororation is su-ect to income tax, income ayments made to it are su-ect to alicale 2it""oldin$ taxes under existin$ re$ulations.B (RDC No. =#+1+, art I)
rdinary assets are all t"e roerty t"at are "eld y a taxayer in connection 2it" "is trade or usiness, and may include; a) !toc> toc> in trtrade ade of of t"e t"e tax axayer ayer,, or ) t"er roerty of a >ind 2"ic" 2ould roerly e included in t"e inventory of t"e taxayer if on "and at t"e close of t"e taxale year, or c) roerty "eld y t"e taxayer rimarily for sale to customers in t"e ordinary course of "is trade or usiness, or d) roerty used in t"e trade or usiness, of a c"aracter 2"ic" is su-ect to t"e allo2ance for dereciation* or real roerty used in t"e trade or usiness of t"e taxayer. 6NIRC of 1997, !ec. 9 (A) (1), ara"rasin$ and numerin$ sulied /"e term caital assetsB means roerty "eld y t"e taxay taxayer er (2"et" (2"et"er er or not conne connecte ctedd 2it" 2it" "is trade or usin usiness ess), ), :%/ 3! N/ N/ INC%3; a) !toc> toc> in trtrade ade of of t"e t"e tax axayer ayer,, or ) t"er roerty of a >ind 2"ic" 2ould roerly e included in t"e inventory of t"e taxayer if on "and at t"e close of t"e taxale year, or c) roerty "eld y t"e taxayer rimarily for sale to customers in t"e ordinary course of "is trade or usiness, or d) roerty used in t"e trade or usiness, of a c"aracter 2"ic" is su-ect to t"e allo2ance for dereciation* or real roerty used in t"e trade or usiness of t"e taxayer. 6NIRC of 1997, 6!ec. 9 (A) (1), arran$ement and numerin$ sulied N/! AN3 CDDN/!; 0or analysis, if t"e roerty is used in traded or usiness, it is an ordinary asset. If it is N/ used in trade of usiness it is a caital assert.
Any $ain from t"e sale or exc"an$e of roerty 2"ic" is N/ a caital asset or roerty. roerty. 6NIRC of 1997, !ec. ++ (M), caitali4ed 2ord sulied
Any $ain from t"e sale or exc"an$e of roerty 2"ic" I! a caital asset or roerty. 1) Caital $ains su-ect to final tax. /"ese are usually imosed uon t"e sale, exc"an$e or ot"er disosition of a) real roerty ) and s"ares of sto stoc> t"a t"at are not listed and and trade t"rou$" t"e stoc> exc"an$e. +) Caital Caital $ains $ains included included in $ross income income and reorted reorted in t"e income tax return return for income tax uroses.
15 /"e amount t"at remains after ta>in$ t"e receit from t"e disosition of t"e caital asset and sutractin$ t"e ac5uisition cost or cost asis. /"is $ain is t"en t"e tax ase uon 2"ic" t"e caital $ains tax is imosed. A fixed value of t"e caital asset irresective of 2"et"er t"ere is an actual caital $ain or an actual caital caital loss. /"e tax ase for t"e imosition of t"e caital $ains tax is t"e fixed value as determined y statute. 1) /"e source source of caital caital $ain is roerty roerty not used in trade or usiness &'I t"e source of ordinary $ain is roerty used in trade or usiness. +) !ome tyes of caital $ains are ad-usted y t"e "oldin$ eriod, &'I t"e "oldin$ eriod does not find alication to ordinary $ains. ) 0rom certain tyes of caital $ains may e deducted ordinary losses, &'I only ordinary losses may e deducted from ordinary $ains. 8) /"e concet concet of net loss carryove carryoverr alies alies to caital caital $ains $ains taxation, &'I t"e concet of net oeratin$ loss carryover alies to ordinary $ains taxation. ) Generally no deductions are allo2ed from caital $ains &'I deductions are usually allo2ed for ordinary $ains. =) Generally caital $ains are su-ect to final taxes, &'I t"is is not so 2it" re$ard to ordinary $ains* 7) /"e /"e inco income me fro from m cai caita tall $ain $ainss are are not not $ene $enera rallllyy to e inc inclu lude dedd in t"e annual income tax return, &'I ordinary income is to e included in t"e annual income tax return.
A lon$ term caital $ain is one t"at is derived from t"e disosition disosition of a caital asset t"at "as een "eld for more t"an t2elve (1+) mont"s &'I a s"ort#term caital $ain is t"at derived from t"e disosition of a caital asset t"at "as een "eld for not more t"an t2elve (1+) mont"s. 6NIRC of 1997, !ec. 9 (:)
/"e excess of t"e $ains from sales or exc"an$es of caital assets over t"e losses from sales or exc"an$es of suc" assets. 6NIRC of 1997, !ec. 9 (A) (+) /"e excess of t"e losses from sales and exc"an$es of caital assets over t"e $ains from sales or exc"an$es of suc" assets. 6NIRC of 1997, !ec. 9 (A) ()
/"e $ain from t"e sale or ot"er disosition of roerty s"all e t"e excess of t"e amount reali4ed t"erefrom over t"e asis or ad-usted asis asis for determinin$ determinin$ $ain.B 6 NIRC of 1997, !ec. 8 (A), 1st sentence /"e amount reali4ed from t"e sale or ot"er disosition of roerty s"all e t"e sum of money received lus t"e fair mar>et value of t"e roerty (ot"er t"an money) received. 6NIRC of 1997, !ec. 8 (A), +nd sentence
16 1) If ac5uired y urc"ase; /"e cost in case of roerty ac5uired on or after Darc" 1, 191*, +) If ac5uired y in"eritance; /"e fair mar>et value or value as of t"e date of ac5uisition. ac5uisition. ) If ac5uired y $ift; a) t"e asis asis s"all s"all e t"e same as if it 2ould 2ould e in t"e "ands of t"e donor donor or t"e last recedin$ recedin$ o2ner y 2"om it 2as not ac5uired y $ift. ) KC/ KC/ t"at t"at if suc" suc" asis asis is $reate $reaterr t"an t"an t"e fair fair mar>et value of t"e roerty at t"e time of t"e $ift, t"an for t"e urose of determinin$ loss, t"e asis s"all e t"e fair mar>et value. 8) If t"e t"e ro roert ertyy 2as 2as ac5ui ac5uired red for less less t"an t"an an ade5 ade5uat uatee consideration in money or moneyHs 2ort", t"e asis of suc" roerty is t"e amount aid y t"e transferee for t"e roerty. /"e loss s"all e t"e excess of t"e asis or ad-usted asis for determinin$ loss over t"e amount reali4ed.B reali4ed.B 6NIRC of 1997, !ec. 8 1st
(A), sentence
In comutin$ net income, no deduction s"all in any case e allo2ed in resect of losses from sales or exc"an$es of roerty directly or indirectly et2een related arties. 6NIRC of 1997, !ec. = (:) /"e follo2in$ are included in t"e concet of related arties for t"e urose of t"e ro"iition. 1) Demers of t"e same family. family. 0or uroses of definin$ related arties, t"e family of an individual includes only "is rot"ers and sisters (2"et"er y t"e 2"ole or "alf#lood), souse, ancestors, and lineal descendants, descendants, or +) An individual and a cororation more t"an fifty er#cent (P) in value of t"e outstandin$ stoc> of 2"ic" is o2ned, directly or indirectly, y or for suc" individual, or ) /2o /2o coro cororat ration ionss more more t"an t"an fifty fifty erce ercent nt (P) (P) in in value value of of t"e outstandin$ stoc> of eac" of 2"ic" is o2ned, directly or indirectly, y or for t"e same individual, or 8) /"e $rantor and a fiduciary of any trust, or ) /"e fiduciary of a trust and t"e fiduciary of anot"er trust of t"e same erson is a $rantor 2it" resect to eac" trust, or =) A fiduciary of a trust and a eneficiary of suc" trust. 6NIRC of 1997, !ec. = (:) N/! AN3 CDDN/!; Interests aid to related arties are not allo2ed to e deducted from $ross income.
1) oss osses es from from sale saless or or exc exc"a "an$ n$es es of cai caita tall ass asset ets, s, are are +) allo2ed to e deducted only to to t"e extent of t"e $ains from suc" sales or exc"an$es. 6NIRC of 1997, !ec. 9 (C), 1st sentence, arran$ement and numerin$ sulied
1) "iliines,
If a an> or trust comany incororated under t"e la2s of t"e
17 +) a sustanti sustantial al art of 2"ose 2"ose usiness usiness is t"e receit receit of deosits, ) sells any ond, deenture, note, or certificate or ot"er evidence of indet indetedn edness ess issue issuedd y any coror cororati ation on (inclu (includin din$$ one issu issued ed y a $overnme $overnment nt or olitica oliticall sudivis sudivision ion t"ereof), t"ereof), 2it" interest interest couons or in re$istered form, 8) any loss resultin$ from suc" sale s"all not e su-ect to t"e aove limitations limitations and s"all not e included in determinin$ determinin$ t"e alicaility alicaility of 6NIRC C of 1997, 1997, !ec. !ec. 9 (C), +nd sentence, suc" suc" limit limitati ation on to ot"er ot"er losse losses. s. 6NIR arran$ement and numerin$ sulied
1) If any taxayer, ot"er t"an a cororation, +) sustains in any taxale year a net caital loss, ) suc" loss (in an amount amount not in excess excess of t"e net income income for suc" year) 8) s"all e treated in t"e succeedin$ succeedin$ taxale year as a loss from t"e sale or exc"an$e exc"an$e of a caital asset "eld for not more t"an t"an t2elve mont"s. 6NIRC of 1997, !ec. 9 (3), arran$ement and numerin$ sulied N/! AN3 CDDN/!; /"e net caital loss carry#over is allo2ed only to individuals, includin$ estates and trusts. It could not e availed of of y cororations. 0urt"ermore, 0urt"ermore, even for individuals individuals t"e net loss carry#over carry#over s"all not exceed t"e net income for t"e year sustained, and is deductile only once (for t"e succeedin$ year) from t"e sale or exc"an$e of a caital asset "eld for not more t"an t2elve mont"s. /"e caital assets must not e real roerty or stoc>s listed and traded in t"e stoc> exc"an$es ecause t"ese are su-ect to final taxes. /"e reader s"ould note t"e limitations for t"e net loss carry#over, secially t"at t"e carry#over is allo2ed only for t"e next succeedin$ taxale year. 0inally, t"e reader is reminded t"at all transactions made durin$ t"e year of caital assets t"at are not real roerty or s"ares of stoc>s listed and traded in t"e stoc> exc"an$e s"ould e ta>en into account in t"e determination of 2"et"er t"ere existed a loss durin$ t"e taxale year. xamles of suc" caital assets are s"ares of stoc> t"at are not listed and traded in t"e stoc> exc"an$e, -e2elry, motor ve"icles, o-ects of art, and ot"er ersonal roerty roerty ot"er t"an s"ares of stoc> t"at are listed and traded in t"e stoc> exc"an$e. ; /"e aut"or does not a$ree 2it" t"e statement of t"e :IR t"at, if t"e transferor transferor of t"e s"ares is an individual, individual, t"e rule on "oldin$ eriod and caital loss carry#over carry#over 2ill not aly aly 6RR No. =#+F, !ec. !ec. 7 (c.8, +nd sentence) sentence) ecause an administrative issuance could not limit an exress rovision of a statute.
1) Net loss carry#ove carry#overr is is a conce concet t in caital caital $ains $ains taxation taxation,, &'I net oeratin$ loss carry#over is a concet in ordinary income taxation* +) Net loss carry#over is en-oyed only y individuals, individuals, estates and trusts and not cororations, &'I net oeratin$ loss carry#over is en-oyed only y cororations, not individuals, estates or trusts* ) Net Net loss loss carr carry# y#ov over er may may e avai availe ledd of only only duri durin$ n$ t"e t"e succeedin$ year, &'I net oeratin$ loss carry#over may e en-oyed over a eriod of t"ree () years.
A final tax of six ercent (=P) ased on t"e $ross sellin$ rice or current fair mar>et value (:IR 4onal valuation or t"e assessorHs
18 value), 2"ic"ever is "i$"er, is imosed uon caital $ains resumed to "ave een reali4ed from t"e sale, exc"an$e, exc"an$e, or ot"er disositi disosition on of located in t"e "iliines, classified as caital assets, includin$ acto de retro sales sales and ot"er forms of conditional sales, sales, 6NIRC of 1997, !ec. +8 (3), em"asis sulied) y individuals, includin$ estates and trusts. A final tax of six ercent (=P) is "erey imosed on t"e $ain resumed to "ave een reali4ed reali4ed from t"e sale, sale, exc"an$e exc"an$e or disosition disosition of 2"ic" are not actually used in t"e usiness of a cororation and are treated as caital assets, ased on t"e $ross sellin$ rice or fair mar>et value (:IR 4onal valuation or t"e assessorHs value), 2"ic"ever 2"ic"ever is "i$"er, of suc" B 6NIRC of 1997, !ec. +7 (3) (), em"asis sulied N/! AN3 CDDN/!; CDDN/!; /"e reader s"ould ta>e note of t"e differential differential treatment. treatment. 0or individuals, individuals, estates and trusts t"e su-ect may e any real roertyB ut for cororations cororations t"e su-ect is limited only to lands andor uildin$s.B 0urt"ermore, t"e asset disosed of must e a caital asset and t"e caital asset s"ould e located in t"e "iliines. If located outside t"e "iliines treat it as if it is an ordinary asset. i>e2ise, t"e uyer s"ould not e t"e $overnment. 0inally, t"e "oldin$ eriod s"ould not e alied and t"e tax is alied 2"et"er t"ere is a $ain or a loss arisin$ from t"e transaction. transaction. /"is is so ecause t"e tax is imosed on t"e resumed caital $ains.B
1) Indiv Individu idual al citi citi4en 4en,, 2"et" 2"et"er er resid resident ent or not, not, and indiv individu idual al resi residen dentt alien alien of t"e "iliines. "iliines. 6NIRC of 1997, !ec. +8 (3) +) non#re non#resid sident ent alien alien en$a en$a$ed $ed in trad tradee or usine usiness ss 2it 2it"in "in t"e "ili "iliin ines. es. 6Iid., !ec. + (A) (),in relation to !ec. +8 (3)
) non# non#rresi esident dent ali alien not not en$a$ n$a$eed in tra trade or usi usine ness ss 2it" 2it"iin t"e "iliines. 6Iid., !ec. + (:), +nd sentence, in relation to !ec. +8 (3) 8) an estate or trust. 6Iid., !ec. +8 (3) ) a domestic cororation. 6Iid., !ec. +7 (3) ()
/"e tax imosed on suc" sale or ot"er disositions to t"e $overnment or any of its olitical sudivisions or a$encies or to $overnment o2ned or controlled cororations s"all e determined, at t"e otion of t"e taxayer, in eit"er of t"e follo2in$; 1) includ included ed as art art of $ross $ross incom incomee to e su-ec su-ectt to t"e allo2 allo2al alee deductions andor ersonal and additional exemtions, t"en su-ect to t"e sc"edular tax 6NIRC of 1997, !ec. +8 (3) (1), in relation to !ec. +8 (A) (1) or +) t"e final tax of six ercent (=P) imosed on t"e resumed caital $ain 2"ic" is 2"ic"ever 2"ic"ever is "i$"er of t"e t"e $ross sellin$ sellin$ rice, or t"e current fair mar>et value value (:IR 4onal valuation or t"e assessorHs value). 6Iid., !ec. +8 (3) (1) in relation to !ec. = () N/! AN3 CDDN/!; /"e aove rivile$e is not availale to a cororation.
1) xem xemt tio ionn from from t"e t"e re resu sume medd cai caita tall $ain $ainss tax tax and and ordi ordina nary ry inc incom omee taxes of sales under t"e Community Dort$a$e ro$ram. +) /axai aility lity of o2nerH nerHssmor mort$ t$a$ a$or orHs Hs failu ailure re to red redeem eem for forecl eclose osed auctioned of real roerty 2it"in t"e alicale statutory redemtion eriod. ) xem xemt tio ionn from from t"e t"e re resu sume medd cai caita tall $ain $ainss tax tax and and ordi ordina nary ry inc incom omee taxes of sales under t"e !ecial urose (!@) Act of ++. 8) Real Real estat estatee trans transact actio ions ns unde underr t"e t"e Real Real sta state te Inve Invest stmen mentt /ru /rust st Act Act of +9 may e su-ect to tax if it is a caital asset in t"e "ands of t"e transferor. ) /rans /ransact action ionss invol involvi vin$ n$ ordi ordinar naryy asset assetss are are not not su-e su-ect ct to to cait caital al $ai $ains ns taxation on disosition of real roerty.
19 =)
/ax exem exemt t tra trans nsfe ferr of lan landd and and t"e t"e comm common on are areas as fro from m a real real est estat atee develoer to t"e Condominium Cororation estalis"ed ursuant to t"e rovisions of Reulic Act No. 87+=, ot"er2ise >no2n as t"e Condominium Act. !"ares of stoc> s"all include a)
s"ares of stoc> of a cororation, 1) 2arrants an andor +) oti otion onss to to ur urc" c"as asee s"a s"are ress of of sto stoc> c>** as as 2el 2elll as as ) units of articiation in 1) a artners"i (excet $eneral rofessional artners"is), +) -oint stoc> comanies, ) -oint accounts, 8) -oint ventures taxale as cororations, ) associations associations and recreation or amusement clus (suc" as $olf, olo or similar clus), and =) mutual fund ce certificates. 6NIRC of 1997, !ec. ++ ()* RR No. =#+F, !ec.
(c), numerin$ and arran$ement for ot" sulied N/! AN3 CDDN/!; CDDN/!; /"e follo2in$ tax treatment treatment finds alication alication irresective irresective of t"e nature and c"aracter c"aracter of t"e taxayer, 2"et"er citi4en, alien, resident or non#resident, non#resident, t"e location location of t"e s"ares of stoc> and t"e lace 2"ere sold. /"is is so ecause s"ares of stoc> in domestic cororations "ave otained a usiness situs in t"e "iliines.
/"ere s"all e levied, assessed and collected on every sale, arter or exc"an$e or ot"er disosition of !"ares of !toc> isted and /raded t"rou$" t"e ocal !toc> xc"an$e ot"er t"an t"e sale y a dealer of securities under t"e follo2in$ rules; 1) /ax Rate. Rate. # A stoc> stoc> tran transac sactition on tax tax at at t"e t"e rate rate of of one#" one#"alf alf of one one erc ercent ent (1+ of 1P) ased on t"e amount determined in susection () "ereunder. +) /ax :ase :ase # Gross Gross sellin sellin$$ ric ricee or $ross $ross value ue in in mone moneyy of of t"e t"e s"are s"aress of stoc> sold, artered, exc"an$ed or ot"er2ise disosed of 2"ic" s"all e assumed and aid y t"e seller or transferor t"rou$" t"e remittance of t"e stoc> transaction tax y t"e seller or transferorHs ro>er. 6NIRC of 1997 , !ec. 1+7 (A)* RR No. =#+F, !ec. N/! AN3 CDDN/!; /"e aove tax is not an income tax cate$ori4ed as a caital $ains tax ut a ercenta$e ercenta$e tax in t"e nature of a transaction tax. /"us, an exemtion exemtion from taxation does not include exemtion from t"e ayment of t"is ercenta$e tax.
All ulicly#listed ulicly#listed comanies are re5uired, at all times, to maintain a minimum ercenta$e of listed securities "eld y t"e ulic ulic (or ulic ulic floatB) of ten ercent ercent (1P) (1P) of t"e ulicly ulicly#lis #listed ted comanies comanies issued issued and outstandin$ s"ares, s"ares, exclusive exclusive of any treasury s"ares or 2"ic"ever 2"ic"ever is t"e "i$"er ercenta$e as may e rescried y t"e !ecurities and xc"an$e Commission Commission (!C) or t"e "iliine !toc> xc"an$e (!), to e referred to as t"e D. (RR No. 1=#+1+, !ection 1, A, 1st and +nd ars.)
1) /ran /ransa sact cted ed u to to 3ecem 3eceme err 1, +1 +1+, +, sti stillll su su-e -ect ct to to t"e t"e trans transac actition on tax. (RR No. 1=#+1+, !ection +, A) +) /rans ransac acte tedd after after 3ece 3ecem mer er 1, 1, +1+, +1+, su su-e -ect ct to to tax as as if it 2as 2as not not listed and traded in t"e stoc> exc"an$e. (Iid., !ection +, :) &it"out alyin$ t"e "oldin$ eriod, a final tax at t"e rates rescried elo2 is "erey imosed uon t"e net caital $ains reali4ed durin$ t"e taxale year from t"e sale, arter, exc"an$e or ot"er disosition of s"ares of stoc> in a domestic cororation; cororation;
20 Not over 1, P n any amount in excess of 1,... 1,... 1P 6 NIRC of 1997, !ec. +8 (C)* RR No. =#+F, !ec. 7 (a), ara"rasin$ sulied N/! AN3 CDDN/!; CDDN/!; /"e tax is imosed on t"e net caital $ain $ain 2"ic" is arrived at y deductin$ t"e cost asis from t"e reali4ed roceeds of t"e sale. !ales rice less cost asis or ac5uisition rice S tax ase.
1) +) ) 8) ) =)
If a cor corora oratio tionn canc cancels els or redeem redeemss stoc stoc>> iss issued ued as a divi dividen dendd at suc" uc" tim time and and in suc" uc" manner nner as to ma>e ma>e t"e t"e dist distririu utition on and and canc cancel ella latition on or rede redem mtition on t"e amount amount so distri distriut uted ed in redem redemtition on or canc cancell ellati ation on of t"e stoc> stoc> s"al s"alll e consi onside dere redd as tax taxale ale inco income me to t"e t"e exte extent nt t"at t"at it rer reres esen ents ts a dist distri riu utition on of earn earnin in$s $s or rof rofititss.
6NIRC of 1997, !ec. 7 (:), +nd sentence, arran$ement and numerin$ sulied
. /"e first tax treatment is t"at found under !ec. 7 (:), NIRC of 1997, 2"ic" osits t"at t"e extent of t"e amounts distriuted in redemtion or cancellation of t"e stoc> s"ould e considered as taxale income to t"e extent t"at it reresents a distriution of earnin$s or rofits. rofits. It is clear t"at t"e income tax referred to is a tax t"at falls under /itle II, /ax /ax on Income, of t"e NIRC of 1997. /"is may constitute income income reortale as art of t"e income tax return or su-ect to final tax on income. n t"e ot"er ot"er "and, "and, 2"ere 2"ere t"e s"are" s"are"old older er surren surrender derss "is "is s"are s"aress to to t"e t"e cororation as a result of cancellation or redemtion, t"at may e considered as sale, arter, exc"an$e or ot"er disosition of s"ares of stoc> in a domestic cororationB, not t"rou$" t"e stoc> exc"an$e, su-ect to t"e assive income tax 2"ic" is a final tax under !ecs. +8 (C)* + (A) ()* + (:)* +7 (3) (+)* !ec. +F (A) (7) (c)* and !ec. +F (:) () (c), all of t"e t"e NIRC of 1997. /"is final tax is considered considered as a tax on income income t"at falls under /itle II, /ax on Income, of t"e NIRC of 1997. /"e t"ird t"ird tax treatm treatment ent,, is is t"at t"at found found under under !ec. !ec. 1+7 1+7 of t"e Code Code 2"ic" 2"ic" imoses a final tax on every sale, arter, exc"an$e or ot"er disosition of s"ares of stoc> listed and traded t"rou$" t"e local stoc> exc"an$e ot"er t"an t"e sale y a 6!ec. 1+7 (A), NIRC of 1 997 dealer in securitiesB. N/! AN3 CDDN/!; CDDN/!; Considerin$ Considerin$ all t"e aove statements, t"e aut"or sumits t"at t"e tax treatment 2ould e deendent uon t"e follo2in$ factors; 1) /"e nature of t"e s"ares of stoc> ein$ disosed disosed of, 2"et"er t"e s"ares are caital assets or ordinary assets* +) &"et"er or not t"e s"ares of stoc> are listed and traded and listed in t"e stoc> exc"an$e. /"e aove tax treatment treatment is recommended recommended ecause of t"e "rase or ot"er disositionB disositionB 2"ic" could aly to cancellation or redemtion. Refer to t"e revious discussion on t"e tax treatment of t"e disosition of s"ares of stoc> t"at are caital assets.
Conditional exemtion exemtion in favor of natural ersons su-ect to t"e follo2in$ re5uirements; re5uirements; a) t"e t"e sell seller erss are are natu natura rall ers ersons ons, ) t"e sale or disosition is of t"eir rincial residence c) t"e roceeds roceeds of 2"ic" 2"ic" is fully utili4ed utili4ed in ac5ui ac5uirin$ rin$ or constr constructi uctin$ n$ a ne2 rincial residence d) 2it"in ei$"teen (1F) calendar mont"s from t"e date of sale or disosition, e) t"e "istorical cost or ad-usted asis of t"e real roerty sold or disosed s"all e carried over to t"e ne2 rincial residence uilt or ac5uired;
21 f) t"e :IR Commissioner Commissioner s"all "ave een duly notified y t"e taxayer 2it"in t"irty () days from t"e date of sale or disosition t"rou$" a rescried return of "is intention to avail of t"e tax exemtion* $) t"e said tax exemtion can only e availed of once every ten (1) years. 6NIRC of 1997, !ec. +8 (3) (+) , numerin$ and arran$ement sulied
/"e $eneral rovisions of t"e code to t"e contrary not2it"standin$, not2it"standin$, caital $ains resumed to "ave een reali4ed reali4ed from t"e sale, exc"an$e exc"an$e or disosit disosition ion y a natural natural erson of "is rincial Residence s"all s"all not e imosed 2it" six ercent (=P) caital $ains tax, su-ect to comliance 2it" t"e follo2in$;B 1) scro2 A$reement A$reement deositin$ in escro2 t"e tax aertainin$ to t"e roceeds of t"e disosition of t"e rincial residence. +) Caital Gains /ax /ax Return. ) ost Reortin$ Re5uirement s"o2in$ comliance comliance 2it" t"e re5uirements for tax exemtion. 8) Release from t"e scro2 A$reement. ) imitation on /ax /ax xemtion rivile$e. 6RR No. 1#99, as amended y RR No. 18# +, !ec. , arran$ement and ara"rasin$ sulied
If t"ere is no full utili4ation of t"e roceeds of sale, or disosition , t"e ortion ortion of t"e $ain resumed to "ave een reali4ed reali4ed from t"e sale or disosit disosition ion s"all e su-ect su-ect to caital $ains tax. 0or t"is urose, t"e $ross sellin$ rice or fair mar>et value at t"e time of sale, 2"ic"ever is "i$"er, s"all e multilied y a fraction 2"ic" t"e unutili4ed ortion ears to t"e $ross sellin$ rice in order to determine t"e taxale ortion and t"e resumed caital $ains tax. 6NIRC of 1997, !ec. +8 (3) (+) numerin$ and arran$ement sulied
/"is is income from an activity in 2"ic" t"e income earner did not "ave any sustantial material material articiation. 0or examle interest income income earned from an> deosits and deosit sustitutes. /"e comensation 2"ic" is aid y t"e orro2er of money to t"e lender for its use, and $enerally y a detor to "is creditor in comensation for "is detention of t"e det. 3etermine t"e nature of t"e interest income. Is it assive income, suc" as interest earned from an> deosits and deosit sustitutes su-ect to t"e final tax R is it income derived from t"e usiness activities activities of t"e income earner arisin$ from trade or usiness suc" as interest earned from lendin$ money 2"ic" s"ould e reorted in t"e income tax return as ordinary income su-ect to t"e $loal or sc"edular system of taxation. /"e interests are not su-ect to 2it""oldin$ ecause t"ey are exemt from final taxes. (3uma$uete Cat"edral Credit Cooerative v. Commissioner of Internal Revenue, G.R. No. 1F+7++, eein$ >eein$ 2it" t"e letter letter and sirit of t"e Constituti Constitution on conside considerin rin$$ cooeratives as instruments for social -ustice and economic develoment, t"e state olicy to romote social -ustice 2"ic" includes t"e commitment to create economic oortunities ased on freedom of initiatives and self reliance. (3uma$uete, sura )
22
Interest earned from forei$n currency deosits of taxayers t"at are not su-ect to tax on t"eir incomes from 2it"out are exemt from t"e final or ot"er >inds of taxes. (RR No. 1#9F) RA!N; /"ey /"ey are fruits of income from 2it"out 2it"out "ence also incomes from 2it"out. N/! AN3 CDDN/!; If t"e forei$n exc"an$e earnin$s are converted to local currency t"e interest income 2ould t"en e taxale.
An alternative form of otainin$ funds from t"e ulic (t"e term TulicT means means orro2in$ from from t2enty (+) or more more individual or cororate cororate lenders at any one time) time) ot"er ot"er t"an deosits, deosits, t"rou$" t"e issuance issuance,, endorsem endorsement, ent, or accetanc accetancee of det instruments for t"e orro2ers o2n account, for t"e urose of relendin$ or urc"asin$ of receivales and ot"er oli$ations, or financin$ t"eir o2n needs or t"e needs of t"eir a$ent or dealer. 6NIRC of 1997, !ec. ++ (L), 1st sentence N/! AN3 CDDN/!; /"e income are from deosit sustitutes are su-ect to final tax if "e income earner is assive income ut if t"e income is derived from ein$ in t"e usiness of lendin$ or relendin$ money t"en it is treated as ordinary income su-ect to re$ular income taxation.
/"ese instruments may include, ut need not e limited limited to an>ersT an>ersT accetan accetances ces,, romisso romissory ry notes, notes, reurc"a reurc"ase se a$reement a$reements, s, includin includin$$ reverse reverse reurc"ase a$reements entered into y and et2een t"e :an$>o !entral n$ iliinas (:!) and any aut"ori4ed a$ent an>, certificates of assi$nment or articiation and similar instruments 2it" recourse. 6NIRC of 1997, !ec. ++ (L), +nd sentence N/! AN3 CDDN/!; CDDN/!; det instruments instruments issued for interan> interan> call loans 2it" maturity of not more t"an five () days to cover deficiency in reserves a$ainst deosit liailities, includin$ t"ose et2een or amon$ an>s and 5uasi#an>s, 5uasi#an>s, s"all not e considered as deosit sustitute sustitute det instruments. instruments. 6NIRC of 1997, !ec. ++ (L), +nd sentence
In order for an instrument to 5ualify as a Jdeosit sustituteH t"e orro2in$ orro2in$ must e made from t2enty (+) or more individua individuall or cororate cororate lenders lenders at any one time. time. Corollarily, Corollarily, t"e mere flotation of a det instrument is not considered to e a JulicH orro2in$ orro2in$ and is not deemed a Jdeosit sustituteH if t"ere are only nineteen (19) or less individual or cororate lenders at any one time. N/! AN3 CDDN/!; 'o2ever, any erson "oldin$ any interest, 2"et"er le$al or eneficial, on a det instrument or "oldin$ t"ereof eit"er y assi$nment or articiation, 2it" or 2it"out recourse, s"all e considered as lender and t"us, e counted in alyin$ t"e 19#lender rule. (RR No. 18#+#1+, !ection F)
!toc> dividends are unreali4ed $ain and cannot e su-ect su-ect to income income tax until t"e $ains $ains "ave een reali4ed. reali4ed. !toc> !toc> dividends dividends reresent caital and do not constitute constitute income to its reciient. /"e mere issuance t"ereof is not su-ect to income tax as t"ey are not"in$ ut an enric"ment t"rou$" increase in value of caital investment.B As caital, stoc> dividends ostone t"e reali4ation of rofits ecause t"e fund reresented y t"e ne2 stoc> "as een transferred from surlus to caital and no lon$er availale for actual distriution.B :efore reali4ation, stoc> dividends dividends are not"in$ ut a reresentation of an interest in t"e cororate roerties. roerties. As caital, caital, it is not yet su-ect su-ect to income tax. tax. (Commissioner of Internal Revenue v. Court of Aeals, et al ., G.R. No. 1F7=,
23 3istriution or transfer, of roerty "eld for sale and ordinarily su-ect to @A/ @A/, to s"are"olders or investors as s"are in t"e rofits of a @A/# re$istered erson 6NIRC of 1997, !ec. 1= (:) (+) (a) s"all e su-ect to @A/.
/"e comensation for t"e use of a atented invention 6%niversal 0ood Cororation v. Court of Aeals, !CRA 11 (197)
A final final tax at t"e rate of t2enty t2enty ercent (+P) is "erey imosed uon t"e amount of royalties, excet on oo>s, as 2ell as ot"er literary 2or>s and musical comositions, 2"ic" s"all e imosed a final tax of ten ercent (1P). 6NIRC of 1997, !ec. +8 (:) (1), ara"rasin$ sulied N/! AN3 AN3 CDDN/!; CDDN/!; 0or cororations, cororations, t"e tax tax rate is also +P 2it"out 2it"out any distinction distinction as to royalties. 6NIRC of 1997, !ec. +7 ((3) (1)* !ec. +F (7) (a) /"us, even oo>s and ot"er literary 2or>s and musical comositions s"all e su-ect to t"e +P tax. i>e2ise, ri4es, and ot"er 2innin$s (excet "iliine C"arity !2eesta>es and otto 2innin$s) of cororations are not su-ect to t"e final tax ut included as art of t"eir ordinary income.
/"e amount aid for use of roerty in 2"ic" t"e ayor does not intend to ta>e o2ners"i.
:e sure t"at you are ale to distin$uis" et2een et2een a true leaseB and a conditional sale.B sale.B If it is a true lease t"en t"e lessee may deduct t"e rental ayments as exenses and t"e lessor reco$ni4es income from t"e lease ayments from 2"ic" "e may deduct dereciation of t"e leased roerty. If it is a conditional sale, t"en t"e lessee may not e allo2ed to deduct t"e ayments as rental exense ecause t"e ayments are treated as caital exenditures ut "e may su-ect t"e roerty leasedB to dereciation. dereciation. n t"e ot"er "and t"e lessor reco$ni4es t"e ayments ayments as income ut "e may deduct t"e cost of t"e roerty sold from "is income and not dereciation. A contract or a$reement urorted to e a lease s"all e treated as conditional sales contract if one or more of t"e follo2in$ comellin$ ersuasive factors are resent; 1) /"e /"e less lessee ee is $ive $ivenn t"e t"e oti otion on to urc urc"a "ase se t"e t"e asse assett at any any time time duri durin$ n$ t"e t"e oli$atory eriod of t"e lease, not2it"standin$ t"at t"e otion rice is e5uivalent to or "i$"er t"an t"e current fair mar>et value of t"e asset* +) /"e /"e leas leasee ac5u ac5uirires es auto automa matiticc o2ne o2ners rs"i "i of t"e t"e asse assett uon uon aym aymen entt of t"e t"e stated amount of rentalsB 2"ic" under t"e contract "e is re5uired to ma>e* ) ortio ortions ns of t"e erio eriodic dic rental rental aymen ayments ts are credit credited ed to t"e urc" urc"ase ase rice rice of t"e asset* 8) /"e /"e rece recei its ts of aym aymen entt indi indica cate te t"at t"at t"e t"e aym aymen ents ts made made 2ere 2ere art artia iall or full full ayments of t"e asset. (RR No. 19#F=, !ec. 8.+)
In t"e asence of t"e aove comellin$ ersuasive ersuasive factors or contrary imlication, imlication, an intent 2arrantin$ treatment of a transaction for tax uroses as a urc"ase and sale rat"er t"an as a lease or rental a$reement, may in $eneral e said to exist if, for examle, one or more of t"e follo2in$ conditions are resent; 1) ortio ortions ns of t"e erio eriodic dic aymen ayments ts are made made seci secific ficall allyy ali alica cale le to an e5uity e5uity to e ac5uired y t"e lessee.
24 +) /"e /"e ro roer erty ty may may e ac5u ac5uirired ed unde underr a urc urc"a "ase se oti otion on,, at a ric ricee 2"ic 2"ic"" is nominal in relation to t"e value of t"e roerty at t"e time 2"en t"e otion may e exercised, as determined at t"e time of enterin$ into t"e ori$inal a$reement, or 2"ic" is a relatively small amount 2"en comared 2it" t"e total ayments 2"ic" are re5uired to e made. (RR No. 19#F=, !ec. 8., numerin$ sulied)
Income treated as ordinary income reortale in t"e income tax return and not su-ect to final tax.
If imrovements are in lieu of rent, t"e value is income to t"e landlord uon comletion comletion of t"e imrovements. If t"e imrovements are not in lieu of rents, t"e value t"ereof is income to t"e :>att v. %.!., %.!. +=7, and landlord only in t"e year of termination of t"e lease. (:>att 'elverin$ v. :runn, 9 %.!. 8=1)
Amounts received in advance are not treated as revenue of t"e eriod in 2"ic" t"ey are received ut as revenue of t"e future eriod or eriods eriods in 2"ic" t"ey are earned. earned. /"ese amounts are carried as unearned revenue, t"at is liailities to transfer $oods or render services in t"e future ? until t"e earnin$ rocess is comlete. (Danila Dandarin 'otels, Inc. v. /"e Commissioner of Internal Revenue , C/A Case No. 8=, Darc" +8, 1997)
Not su-ect to final tax considered as ordinary income unless excluded from $ross income. Generally considered as income su-ect to final tax unless it is amon$ t"ose excluded from $ross income or does not exceed 1,. in 2"ic" case it is included in t"e income tax return su-ect to ordinary income taxation. If not excl excluded uded from from $ross $ross income reorted in t"e income tax return su-ect to ordinary income taxation. All income not exressly excluded or exemted from t"e class of taxale income, irresective of t"e voluntary or involuntary action of t"e taxayer in Revenue, C/A Case No. =, Au$ust 1, 19=) roducin$ t"e income. (Gutierre4 v. Collector of Internal Revenue, /"e source of t"e income may e le$al or ille$al. It may li>e2ise include include amounts of indetedness t"at are for$iven, recovered accounts reviously 2ritten#off or taxes reviously deducted from $ross income ut suse5uently suse5uently refunded. 1) &"en cancellation cancellation of det is income. If an individual erforms services for a creditor, creditor, 2"o in considerati consideration on t"ereof, cancels cancels t"e det, it is income income to t"e extent extent of t"e amount reali4ed y t"e detor as comensation for "is services. +) &"en t"e cancellation cancellation of det is a $ift. $ift. If a creditor merely desires to enefit a detor and 2it"out any consideration t"erefore cancels cancels t"e amount of t"e det is a $ift from t"e creditor to t"e detor and need not e included in t"e latterHs income. ) &"en cancellation cancellation of det is a caital transaction. If a cororation to 2"ic" a stoc>"older is indeted for$ives t"e det, t"e transaction "as t"e effect of ayment of a dividend. (RR No. +, !ec. )
25 8) An insolvent detor does not reali4e taxale income from t"e cancellation cancellation or for$iveness. (Commissioner v. !immons Gin Co., 8 0+d +7 CCA 1t") ) /"e insolvent detor reali4es income resultin$ from t"e cancellation cancellation or 6 a>eland Grocery Co. v. Commissioner, for$iveness of indetedness 2"en "e ecomes solvent. = :/A (0) +F9
%nder t"e tax enefit ruleB ad dets t"at 2ere reviously 2ritten off and deducted from $ross income ut suse5uently aid are recaturedB and included as art of t"e income in t"e year year in 2"ic" t"ey 2ere suse5uently suse5uently aid. /"ey t"us ecome ecome taxale. /"is is only alicale 2"ere t"e dets arose out of trade or usiness suc" as trade receivales, or amounts lent. 'o2ever, if t"ey 2ere not ersonal loans t"at "ad no relation at all to trade or usiness, "ence could not e deducted from $ross income if not aid, t"en t"e suse5uent ayment does not result to income. /axes /axes incurred in in connection 2it" 2it" trade or usiness are $enerally deductile from $ross income to arrive at income su-ect to tax. 'o2ever, under t"e tax enefitB or BrecatureB rule, t"e amount of taxes reviously deducted ut are suse5uently refunded or allo2ed as a tax credit to t"e taxayer 2"o made t"e deduction, are t"en considered as income in t"e eriod refunded or credited.
As a $eneral rule, t"e determinative determinative factor for t"e source ruleB (t"e lace lace 2"ere t"e income 2as earned) is t"e lace 2"ere t"e income earnin$ activity activity too> lace. /"is means t"at if t"e income earnin$ activity too> lace in t"e "iliines t"en it is income derived from sources 2it"in t"e "iliines. "iliines. n t"e ot"er "and if t"e income earnin$ activity too> lace outside of t"e "iliines, t"en it is income derived from sources 2it"out t"e "iliines. "iliines. /"e rationale e"ind t"e source rule is t"e symiotic relations"i or t"e enefit#rotection t"eory. /"e lace 2"ere t"e income earnin$ activity "as t"e -urisdiction -urisdiction to imose t"e tax ecause it is t"e one t"at $ives rotection to t"e activity. /"e source rule is imortant ecause some taxayers are su-ect to taxation ot" on t"eir incomes from 2it"in and 2it"out 2"ile ot"ers are to e taxed only on t"eir incomes from 2it"in and t"ose from 2it"out. 0or detailed discussion discussion refer to $eneral rinciles rinciles of income taxation, taxation, a$e 7, sura.
,AR /"e amount received as dividends; 1) from a domestic cororation +) from a forei$n cororation a) DR t" t"an fif fifty e ercent ( (P) of t" t"e $ross income of suc" forei$n cororation ) for for t"e t"ree "ree##year year eri eriood endi endinn$ 2it" it" t"e close of its taxale year recedin$ t"e declaration declaration of suc" dividends dividends (or for suc" art of suc" suc" eriod as t"e cororation "as een in existence) c) 2as 2as deriv derived ed from from sour source cess 2it" 2it"in in t"e t"e "ili "ili in ines es as det deter ermi mine nedd under under t"ese rovisions d) ut ut only only in in an amo amoun untt 2"ic 2"ic"" ear earss t"e t"e same same rat ratio io to to suc" suc" div divid iden ends ds as as t"e $ross income of t"e cororation for suc" eriod derived from sources 2it"in t"e "iliines
26 e) ear earss to its its $ros $rosss inco income me from from all all sourc ources es.. 6NIRC of 1997, !ec. 8+ (A) (+) (a), (), numerin$ and arran$ement sulied N/! AN3 CDDN/!; CDDN/!; All dividends dividends ot"er t"an t"e aove are dividends derived from sources 2it"out t"e "iliines. 3ividends received y a domestic cororation from anot"er domestic cororation are not su-ect to tax. Comensa Comensation tion for laor laor or ersonal ersonal services services erformed in t"e "iliines 6NIRC of 1997, !ec. 8+ (A) () are considered as income derived from sources 2it"in t"e "iliines. /"is is irresective of t"e ori$in of t"e money, 2"ere t"e service 2as erformed, t"e nationality of t"e income earner, t"e nature of t"e ersonal service erformed, etc. If t"e service is erformed outside of t"e "iliines, "iliines, t"en t"e comensation comensation is income derived from services 2it"out t"e "iliines. "iliines.
Gains, rofits and income from t"e sale of real roerty located in t"e "iliines 6NIRC of 1997, !ec. 8+ (A) () are considered from 2it"in t"e "iliines. If t"e real roerty is located outside of t"e "iliines, t"en t"e roceeds are considered as derived from sources 2it"out t"e "iliines. If t"e contract for t"e sale of ersonal roerty 2as consummated in t"e "iliines, t"en t"e roceeds are considered as 6NIRC of 1997, 1997, !ec. 8+ (), (), 8t" ars., in income derived from sources 2it"in t"e "iliines. 6NIRC relation to !ec. 8+ (A) (=)
/"is is irresective of t"e residence and nationality of t"e uyer and t"e seller, t"e source of t"e money, 2"ere t"e ersonal roerty sold 2as ori$inally urc"ased, t"e lace of delivery and lace of ayment. (Iid.) It follo2s t"at if t"e contract 2as si$ned outside of t"e "iliines, t"at t"e income 2ould from sources derived 2it"out t"e "iliines. /"e roceeds of sales of s"ares of stoc> of domestic cororations are al2ays considered as from sources 2it"in t"e "iliines. "iliines. 6NIRC of 1997, !ec. 8+ (), 8t" ars., in relation to !ec. 8+ (A) (=) /"is is irresectiv irresectivee of t"e lace lace 2"ere t"e sale 2as consumma consummated. ted. residenc residencee and nationality of t"e uyer and t"e seller, t"e source of t"e money, 2"ere t"e ersonal roerty sold 2as ori$inally urc"ased, t"e lace of delivery and lace of ayment. (Iid.) !"ares of stoc> of domestic cororations "ave otained a usiness situs in t"e "iliines.
(see discussion under in"erent limitations, territorial of C%/ AN3 A!/ GNRA RINCI! and ot"er tax la2s) xclusions from $ross income under t"e National Internal Revenue Code of 1997. 1) ife Insurance roceeds. +) Amou Amount nt rece receiv ived ed y insu insure redd as as ret retur urnn of of re remi mium um.. ) Gifts, e5uest and devises. 8) Com Comen ensa satition on for for in-u in-uri ries es or sic> sic>ne ness ss.. ) Income ex exemt un under trtreaty. =) Reti Retire reme ment nt ene enefifits ts,, en ensi sion ons* s* $rat $ratui uitities es,, etc. etc.
27 7)
Discellaneous Items; a) Inc Income ome der deriv ived ed y fore forei$ i$nn $ove $overn rnme ment nt.. ) Income Income deriv derived ed y t"e $over $overnme nment nt or its oliti olitical cal sudi sudivis vision ions. s. c) ri4es and a2ards. d) ri4 ri4es es and and a2a a2ard rdss in in so sort rtss com come etititition ons. s. t" e) 1 mont" ay and ot"er enefits. f) G!I! G!I!,, !!! !!!,, Ded Dedic icar aree and and ot"e ot"err con contr tri iut utiions. ons. $) Gains ains fro from t"e t"e sale ale of ond ondss, dee deent ntur ures es or ot"e ot"err certi ertifficat icatee of indetedness. ") Gain Gainss from from red redem emt tio ionn of s"a s"are ress in mut mutua uall fund fund.. 6NIRC of 1997, !ec. + (:)
!ome receits are excluded from $ross income ecause t"ey are not income. ven if t"ey are y definition income, t"e exclusions are not su-ect to tax ecause of olicy considerations considerations suc" as to avoid t"e effects of doule taxation, or to rovide incentives for certain socially desirale activities .
a) xclus xclusio ions ns are are amoun amounts ts t"at t"at are are not not includ included ed in $ross $ross inc income ome** deductions are amounts sutracted from ertinent items of $ross income in order to arrive at taxale income uon 2"ic" t"e tax rate is alied, tax credits are amounts sutracted from t"e comuted tax in order to arrive at taxes ayale. ) xclusio xclusions ns are not income* income* deductions deductions are art of income* income* tax credits are taxes t"at are not collected.
1) +) ) 8)
/"e roceeds of life insurance olicies aid to t"e "eirs or eneficiaries uon t"e deat" of t"e insured, 2"et"er in a sin$le sum or ot"er2ise. 6NIRC of 1997, !ec. + (:)
(1) ara"rasin$, arran$ement and numerin$ sulied N/! AN3 CDDN/!; /"e reader s"ould note t"at t"e revocaility or irrevocaility of t"e desi$nation of t"e eneficiary eneficiary is not amon$ t"e conditions. conditions. &"et"er t"e eneficiary eneficiary is desi$nated in a revocale or irrevocale irrevocale caacity does not matter. /"e life insurance roceeds are still excluded from $ross estate.
1) roceeds roceeds of life insuranc insurancee are excluded excluded from $ross income income ecause t"ey arta>e more of indemnity or comensation rat"er t"an $ain to t"e reciient. (RR No. +, !ec. =+) +) ife ife insura insurance nce roce roceeds eds serve serve t"e same same uros urosee as nontaxale in"eritance.
28
1) +) ) 8)
/"e amount received y t"e insured, as a return of remiums aid y "im under life insurance, endo2ment or annuity contracts, eit"er a) durin$ t"e term, or ) at maturity of t"e term mentioned in t"e contract, or c) uon surrender of t"e contract. 6NIRC of 1997, !ec. +
(:) (+), arran$ement and numerin$ sulied
/"e amount returned are not income ut return of caital. /"ey reresent earnin$s 2"ic" 2"ic" 2ere reviously taxed. N/! AN3 AN3 CDDN/!; /"e remiums remiums are excluded ut t"e amounts received received exceedin$ t"e remiums aid are su-ect to tax ein$ a return from t"e use of money (t"e remiums aid).
xcluded from $ross income are 1) Amounts received, t"rou$" a) Accident or 'ealt" Insurance or ) &or>menHs Comensation Comensatio n Acts, +) as comensation comensation for ersonal in-uries or sic>ness, ) lus t"e amounts of any dama$es received, a) y suit or ) a$reement, 8) on account of suc" in-uries or sic>ness. 6NIRC of 1997, !ec. + (:) (8), arran$ement and numerin$ sulied)
/"ey are mere comensation for in-uries or sic>ness suffered and not income. /"e le$al t"eory of ersonal in-ury dama$es is t"at t"e amount received is intended to ma>e t"e laintiff (t"e in-ured arty) 2"ole as efore t"e in-ury.B 6C.A. 'a2>ins, = :./.A. 1+ (19+)
/"ere is need to exclude t"e comensation so as to restore t"e in-ured arty 2"ole 2"ole as efore t"e in-ury. in-ury. /o includ includee t"e comensati comensation on for in-uries in-uries or sic>ness sic>ness suffered in $ross income 2ould e reducin$ t"e restoration of t"e laintiff (t"e in-ured arty) 2"ole as efore t"e in-ury,B
Retirement enefits, $ratuities, ensions, ensions, etc, t"at are excluded from $ross income are t"e follo2in$; 1) Retiremen Retirementt enefits enefits received received under Reulic Reulic Act No. 7=81, 7=81, rovided t"e a$e and years of service re5uirements are met.
29 +) Retirement received from reasonale rivate enefit lan after comliance 2it" certain conditions suc" as t"e a$e and years of service re5uirements. ) Amounts received for eyond control searation 2"ic" does not re5uire any a$e and years of service re5uirements. 8) 0orei$n social security, security, retirement $ratuities, ensions, etc,, 2"ic" do not re5uire any minimum a$e and years of service. ) %!@A %!@A enefits enefits 2"ic" 2"ic" do not re5uire re5uire comlian comliance ce 2it" any minimum a$e and years of service. =) !!! enefits 2"ic" re5uire only comliance comliance 2it" t"e re5uisites for retirement under t"e enalin$ la2. 7) G!I! G!I! enefi enefits ts 2"ic" 2"ic" re5uir re5uiree only only comli comlianc ancee 2it" 2it" t"e re5uisites for retirement under t"e enalin$ la2. 6NIRC of 1997, !ec. + (:) (=), numerin$ sulied
/"e follo2in$ re5uirements must all e comlied 2it" in order to avail of t"e exclusion from $ross income; 1) Uual Uualififie iedd eml emloy oyee ee.. /"e /"e reti retire reee must must a) "ave "ave ren rende dere redd at lea least st ten ten (1 (1)) year yearss serv servic icee 2it" 2it" t"e t"e em emlo loye yer r from 2"ic" "e is retirin$* ) not not less less t"an t"an fif fifty ty ( ()) year yearss at at t"e t"e time time of of t"e t"e reti retire reme ment nt** +) Uuali Uualifie fiedd fund fundin$ in$ sourc source. e. /"e /"e reti retirem rement ent must must e e in acc accord ordanc ancee 2it" 2it" a reasonale rivate retirement lan maintained y t"e emloyer R t"e retirement is in accordance 2it" Re. Act No. 7=81, 2"ic" rovides for t"e otional and mandatory retirement to emloyees in t"e rivate sector. ) /"e /"e reti retire reee must must "av "avee neve neverr en-o en-oye yedd t"e t"e ene enefifitt of exc exclu lusi sion on of of any any retirement ayment received in t"e ast. N/! AN3 AN3 CDDN/!; It does not matter 2"et"er t"e retirement retirement is voluntary as lon$ as t"e re5uirements are met, t"e retirement roceeds are excluded from $ross income. If t"e retirement is comulsory, t"ere is no need to comly 2it" t"e aove re5uirements efore t"e retirement enefits 2ould e excluded ecause t"e same 2ould e excluded under t"e concet of amounts received as a result of searation eyond control.
1) Any amount received y an official, emloyee or y "is "eirs* +) from t"e emloyer ) as a conse5uence conse5uence of searation of suc" official or emloyee from t"e service of t"e emloyer; a) eca ecaus usee of deat deat", ", sic> sic>ne ness ss or ot"e ot"err "ys "ysic ical al disa disai ilility ty** or ) for for any any caus ause eyo eyond nd t"e t"e contr ontrol ol of t"e t"e said said offi offici cial al or emloyee 6NIRC of 1997, !ec. + (:) (=) (), arran$ement and numerin$ sulied, suc" as (1) retrenc"ment, (+) redundancy and 6RR +#9F, #9F, !ec. !ec. +() +() (+), (+), () cessation of usiness. 6RR arran$ement and numerin$ sulied N/! AN3 CDDN/!; /"e searation of t"e official or emloyee must e comelled. In s"ort, "e did not voluntarily see> "is searation. /"ere /"ere is no re5ui re5uire reme ment nt to coml comly 2it" 2it" t"e t"e a$e a$e and term of servi service ce re5uirement nor of t"e fundin$ source.
30 1) /ermin /erminal al leave leave ay is alied alied for y an emloyee emloyee 2"o is no lon$er lon$er 2or>in$, it is no lon$er comensation for services rendered, "ence, not su-ect to income tax* +) /erminal /erminal leave ay is alied for y an emloyee 2"o retires, resi$ns or is searated from t"e service t"rou$" no fault of "is o2n*B ) Comulsory retirement may e considered as a cause eyond t"e control of t"e retirin$ emloyee,B 2"ic" falls 2it"in t"e enumerated exclusions* exclusions* 8) /erminal /erminal leave ay may li>e2ise e vie2ed as a retirement $ratuity received y $overnment emloyeesB 2"ic" falls 2it"in t"e enumerated exclusions . (:orromeo v. Civil !ervice Commission, 199 !CRA 911* Commissioner of Internal Revenue v. Court of Aeals, et al., + !CRA 7+)
1) /"e rovisions of any existin$ la2 to t"e contrary not2it"standin$ not2it"standin$ social security enefits, retirement $ratuities, ensions and ot"er similar enefits a) rec receiv eived y res resident dent or non#r on#res esiident dent citi4e ti4ens ns of t"e "iliines or aliens ) 2"o 2"o com comee to to res resid idee er erma mane nent ntly ly in t"e t"e "i "ilili in ines es c) from from fore foreii$n $over overnm nmen entt a$en a$enci cies es and and ot"er t"er inst instiituti utions ons, rivate or ulic. 6NIRC of 1997, !ec. + (:) (=) (c), arran$ement and numerin$ sulied
+)
ayments of enefits due or to ecome due to a) any any er ersson resi residi din$ n$ in t"e t"e "i "ilili in ines es ) unde underr t"e t"e la2s la2s of of t"e t"e %nit %nited ed !ta !tate tess admi admini nist ster ered ed y y t"e t"e %nit %nited ed !tates @eterans Administration. 6Iid., !ec. + (:) (=) (c))
N/! AN3 AN3 CDDN/!; CDDN/!; It 2ould aear from from t"e aove t"at t"ere t"ere is no need to comly 2it" t"e ten (1) year len$t" of service, t"e a$e re5uirement of not less t"an fifty () years at t"e time of retirement and not "avin$ reviously en-oyed t"e exclusion of retirement enefits.
ri4es and a2ards made rimarily rimarily in reco$nition of reli$ious, reli$ious, c"aritale, scientific, educational, artistic, literary, or civic ac"ievement ut only if; 1) t"e reciient 2as selected 2it"out any action on "is art to enter t"e contest or roceedin$. +) /"e reciient is not re5uired to render sustantial future services as a condition to receivin$ t"e ri4e or a2ard. 6NIRC of 1997, !ec. + (:) (7) (c), arran$ement and numerin$ sulied
1) +) ) 8)
All ri4es and and a2ards $ranted to at"letes in local and international sorts tournaments and cometitions 2"et"er "eld in t"e "iliines or aroad, and sanctioned y t"eir national sorts associations. associations. 6NIRC of 1997, !ec.
+ (:) (7) (d), arran$ement and numerin$ sulied
31
Invest Investme ment nt income income of t"e contr contri iuto utorr consis consistitin$ n$ of all income income earned earned from from t"e investments and reinvestments of "is RA assets in t"e maximum amount allo2ed "erein s"all e exemt from t"e follo2in$ taxes as may e alicale; 1) /"e /"e final final 2it" 2it""o "old ldin in$$ tax on inte intere rest st from from any any curr curren ency cy an> an> deosit, yield or any ot"er monetary enefit from deosit sustitutes and from trust funds and similar arran$ements, includin$ a deository an> under t"e exanded forei$n currency deosit system* +) /"e /"e cai caita tall $ain $ainss tax on on t"e t"e sale, sale, exc exc"a "an$ n$e, e, ret retir irem emen entt or maturity of onds, deentures or ot"er certificates of indetedness* ) /"e /"e 1P 1P tax on on cas" cas" and ando orr roe roert rtyy divi divide dend ndss actu actual ally ly or or constructively received from a domestic cororation, includin$ a mutual fund comany* 8) /"e /"e cai caita tall $ains n s tax tax on t"e t"e sale, sale, ar arte terr, exc" exc"an an$e $e or or ot"er ot"er disosition disosition of s"ares of stoc> in a domestic cororation* ) Re$ular income tax. rovided, t"at eac" secific investment roducts must e aroved y t"e concerned Re$ulatory Aut"ority in accordance 2it" t"e rovisions of RA efore its income or distriution can e $ranted tax incentives and rivile$es "erein rovided. (RR No. 17#+11, !ec. 9) Non#in Non#incom comee taxes, taxes, if alic alical ale, e, relati relatin$ n$ to t"e aove aove invest investme ment nt income income of t"e RA RA Accoun Accountt of a contriutor, s"all remain imosale, includin$ t"e follo2in$; 1) erc ercen enta ta$e $e taxe taxess on erso ersons ns exem exemt t from from valu value# e#ad adde dedd tax, tax, domestic domestic carriers carriers and >eeers >eeers of $ara$es, $ara$es, internati international onal carriers, carriers, franc"ise franc"ise "olders, overseas disatc", messa$e or conversation ori$inatin$ from t"e "iliines, an>s and non#an> financial intermediaries erformin$ 5uasi# an>in$ an>in$ function functions, s, ot"er non#an> non#an> finance finance intermedi intermediarie aries, s, life insuranc insurancee remiums, a$ents of forei$n insurance comanies, amusement, and 2innin$s* +) @alue#added tax* ) !toc> !toc> transa transacti ction on tax on t"e sale, sale, arter arter,, or exc"an exc"an$e $e of s"ares s"ares of stoc> listed and traded t"rou$" t"e local stoc> exc"an$e or t"rou$" initial ulic offerin$s* and 8) 3ocumentary st stam ta tax. (RR No. 17#+11, !ec. 9)
1)
tional standard deduction.
6NIRC of 1997, as amended y Re. Act No.
98, !ec. 8 ()
+) )
Itemi4ed deductions. 6Iid., !ec. 8 (A) to (E) and (D) ersonal and additional exemtions. ( Iid., !ec. , as amended y Re. Act No.
98)
8)
xtraordinary deductions a) /"ose allo2ed to insurance comanies. (Iid., !ec. 7) ) 3educt 3eduction ionss allo2e allo2edd to estat estates es and and trusts trusts avai availilin$ n$ of itemi itemi4ed 4ed deductions of income currently distriuted to eneficiaries. (Iid., !ec. =1) c) osses from 2as" sales of stoc>s or securities. (Iid., !ec. F) d) Certain caital losses ut only from caital $ains. (Iid., !ec. 9) e) 3eductions allo2ed to rivate educational institutions. 6Iid., !ec. 8 (A) (+)
32 1) /"er /"eree must must e a sec secifific ic rov rovis isio ionn of la2 la2 allo allo2i 2in$ n$ t"e t"e dedu deduct ctio ions ns,, since deductions do not exist y imlication. (Atlas Consolidated Dinin$ and 3eveloment 3eveloment #+=911 11,,
+)
/"e re5uirements of deductiility deductiility for eac" secific deduction must e
met* ) /"er /"eree must must e roo rooff of enti entitltlem emen entt to t"e t"e dedu deduct ctio ions ns (Atlas Consolidated, sura* aer Industries Cororation of t"e "iliines v. Court of Aeals, et al ., + !CRA 88)* 8) /"e deductions must not "ave een 2aived (RR No. +, !ec. 7=)* ) /"e 2it""oldin$ and ayment of t"e tax re5uired must e s"o2n 6NIRC of 1997, !ec. 8 (E), !ecs. F and F1.
/"e matc"i matc"in$ n$ conce concet t for deductiility deductiility osits t"at t"e deductions must, as a $eneral rule, matc"B t"e income, i.e. "eled earn t"e income. /"us, t"e re5uisite t"at t"e ordinary and necessary exense t"at is ein$ deducted must "ave een aid or accrued or aid or incurred durin$ t"e taxale year. Conse5uently, Conse5uently, a taxayer 2"o is aut"ori4ed to deduct certain exenses and ot"er allo2ale deductions for t"e current year ut failed to do so cannot deduct t"e same for t"e next year. (Commissioner of Internal Revenue v. Isaela Cultural Cororation, G. R. No. 17++1, 0eruary 1+, +7)
/"is is >no2n as t"e sustantiation sustantiation rule or sustantiation re5uirement. re5uirement. /"e taxayer s"all sustantiate sustantiate t"e exense ein$ deducted 2it" sufficient evidence, suc" as official receits or ot"er ade5uate records y s"o2in$; 1) /"e /"e amo amoun untt of of t"e t"e ex exen ense se ein ein$$ ded deduc ucte ted* d* and and +) t"e t"e dire direct ct conn connec ectition on or rela relatition on of t"e t"e exe exens nsee ein ein$$ dedu deduct cted ed to t"e develoment, mana$ement, oeration andor conduct of t"e trade, usiness or rofession of t"e taxayer. 6NIRC of 1997, !ec. 8 (A) V1W (), arran$ement and numerin$ sulied
%nless rovided, sustantiation, i.e. 1) Rece Receiits ts or ade5 ade5ua uate te rec records ords** +) amount of exense* ) date and lace of exense* 8) urose of exense. ) rofessional or usiness relations"i relations"i of exense a) must must su suo ort rt eac" eac" cla claim imed ed usi usine ness ss or or rofe rofess ssio iona nall exense* ) ot"e ot"er2 r2is isee itit s" s"all all e e di disall allo2e o2ed. (RAD No. 1#F7, No. 1, last sentence, arran$ement and numerin$ sulied)
A deduction deduction 2ill also e allo2ed in t"e follo2in$ cases 2"ere no 2it""oldin$ tax 2as made; 1) /"e ayee ayee reorted reorted t"e income income and ays t"e income income due t"ereon and t"e 2it""oldin$ a$ent ays t"e tax includin$ t"e interest incident to t"e failure to 2it""old t"e tax, and surc"ar$es, if alicale, at t"e time of t"e audit investi$ation or reinvesti$ationreconsidera reinvesti$ationreconsideration. tion.
33 +) /"e reciientayee reciientayee failed to reort t"e income on t"e due date t"ereof, ut t"e 2it""oldin$ a$enttaxayer ays t"e tax, includin$ t"e interest incident to t"e failure to 2it""old t"e tax, and surc"ar$es, if alicale, at t"e time of t"e auditinvesti$ation or reinvesti$ationreconsiderat reinvesti$ationreconsideration. ion. ) /"e 2it""oldin$ a$ent erroneously under2it""eld under2it""eld t"e tax, ut ays t"e difference et2een t"e correct amount and t"e amount of tax 2it""eld 2it""eld,, includin includin$$ t"e interest, interest, incident incident to suc" suc" error, error, and surc"ar$es, surc"ar$es, if al alic ica ale le at t"e t"e time time of t"e t"e audi audit tin inve vest sti$ i$at atio ionn or rein reinve vest sti$ i$at atio ion n reconsideration. (RR No. +#9F, !ec. +.F., +nd ar., as amended y RR. No. 18# ++, numerin$ sulied)
/"ere s"all s"all e allo2ed allo2ed as deduction deduction from $ross $ross income (1) (1) +) )
all all t"e t"e ordi ordina nary ry and and nec neces essa sary ry exe exens nses es ai aid or or inc incur urre redd dur durin in$$ t"e t"e taxa taxal lee yea yearr in car carry ryin in$$ on or 2"i 2"ic" c" are are dir direc ectltlyy att attririu uta tal lee to, to, t"e t"e a) develoment, ) mana$ement, c) oeration andor d) conduct (1) of t"e trade, usiness or exercise of a rofession. 6NIRC of 1997, !ec. 8 (A) (1) ( a)
1) It must must e ai aidd or incu incurr rred ed 2it" 2it"in in t"e t"e taxa taxale le year year** +) /"e /"e ex exen ensse mus mustt e e ord ordin inar aryy and and nece necess ssar ary* y* ) It must meet eet t" t"e us usiiness ess test est ru rule and and e e ai aidd or or incurred in carryin$ on a trade or usiness* 8) /"e sustant sustantiati iation on rule must e comlie comliedd t"rou$" t"rou$" sustantially rovin$ y evidence or records t"e deductions claimed under t"e t"e la2. la2. t"er2is t"er2ise, e, t"e same same 2ill e disall disallo2ed o2ed.. /"e mere mere alle$ation of t"e taxayer t"at an item of exense is ordinary and necessary does not -ustify its deduction . ( Atlas Atlas Consolidated Dinin$ and 3eveloment Cororation, v. Commissioner of Internal Revenue , 1+ !CRA +8=* sso !tandard astern, Inc. v. Commissioner of Internal Revenue, 17 !CRA 189)
) /"e /"e usi usine ness ss ex exens ensee must must not not e an ille ille$a $all exenditure, suc" as ries, ries, >ic>ac>s, for immoral uroses , etc. N/! AN3 AN3 CDDN/!; /"e aove are more familiarly familiarly >no2n as t"e conditions conditions for deductiility deductiility of usiness exense. exense. /"e reader s"ould note t"at aside from from t"e aove, t"e usiness usiness exense must still still comly 2it" t"e re5uisites for deductiility in $eneral.
34
/"ese are t"e exenses 2"ic" are common to incur in t"e trade or usiness of t"e taxayer as distin$uis"ed distin$uis"ed from caital exenditures. exenditures. /"ese are usually usually incurred durin$ taxale year and enefits suc" taxale year. /"e term Bordinary Bordinary exensesB exensesB as used in income income taxation taxation is ta>en in its common si$nificance and it "as t"e connotation of ein$ normal, usual or customary (3euty v. 3u ont, F %.!. 8FF) exenses in earnin$ t"e income t"at is su-ect to t"e tax. xenses 2"ic" are aroriate or "elful to develoment of t"e taxayerHs taxayerHs usiness usiness.. (Atlas (Atlas Consolid Consolidated ated Dinin$ Dinin$ and 3evelo 3eveloment ment Cororation v. Commissioner of Internal Revenue, 1+ !CRA +8=* Al"amra Ci$ar X Ci$arette Danufacturin$ Co., v. Collector of Internal Revenue, 1 "il. 17)
An exense is necessary necessary if t"e taxayer su-ectively su-ectively elieves elieves it 111) may lead to an economic enefit. (&elc" v. 'elverin$, +9 %.!. 111)
A reasonale allo2ance for and ot"er forms forms of comensa comensation tion for ersonal ersonal services services actually actually rendered, 1) Includin$ Includin$ t"e $rossed# $rossed#u u monetary monetary value value of frin$e frin$e enefit furnis"ed or $ranted y t"e emloyer to t"e emloyee* +) rovi ro vided ded,, /"at /"at t"e final final tax imos imosed ed on suc" suc" $rossed#u monetary value of t"e frin$e enefit "as een aid. 6NIRC of 1997, !ec. 8 (A) (1) (a) (I), in relation to !ec.
,AR 1) /"e /"e ay ayment ent of t" t"e on onus is is mad made in $oo $oodd fai fait" for for additional comensation. comensation. +) It must must e for for ers erson onal al serv servic ices es actu actual ally ly rend render ered ed.. ) /"e /"e onu onuss 2"en 2"en adde addedd to sala salariries es is rea reaso sona nal lee 2"en 2"en measured y t"e amount and 5uality of t"e services erformed 2it" relation to t"e usiness of t"e articular taxayer ,B (Euen4le X !treiff, Inc. v. Collector, Collector, 1= "il. * C.D. 'os>ins 'os>ins X Co., Inc. v. Comm Commissio issioner, ner, !CRA 88 ) and 2"en added to t"e stiulated salaries do not exceed a reasonale comensation for services rendered . N/! AN3 AN3 CDDN/!; In C.D. 'os>ins, 'os>ins, X Co., Inc., 'os>ins o2ned o2ned 99.=P 99.=P of t"e stoc>, stoc>, "e ein$ ein$ t"e c"airman c"airman 2"en t"e resolu resolution tion aut"ori4in$ t"e onus 2as assed. /"e !ureme Court "eld, 'avin$ c"osen to use t"e corora cororate te form form 2it" 2it" its advanta$es advanta$es of a searat searatee corora cororate te ersonality as distin$uis"ed from "is individual ersonality, t"e cororation so erected, erected, i.e. etiti etitioner oner,, is ound ound to comort comort itself itself in accordan accordance ce 2it" 2it" its
35 cororate oli$ations. !ecifically, it is ound to ay t"e income tax imosed y la2 on cororations cororations and may not e le$ally ermitted, ermitted, y 2ay of cororate cororate resolution aut"ori4in$ ayment of inordinately lar$e allo2ances and fees to its controllin$ controllin$ stoc>"older, stoc>"older, to dilute and diminis" s" its corresondin$ cororate tax
liaility.B
1) +)
ayment must e in $ood fait"* t"e t"e c"ar c"arac acte terr of t"e t"e tax taxay ayer erHs Hs usi usine ness ss** a) t"e volume and amount of net earnin$s* ) its locality* c) t"e tye and extent of t"e services rendered* d) t"e taxayerHs salary olicy* ) t"e t"e si4e i4e of t"e t"e arti articcular ular us usines inesss* 8) t"e t"e eml emloy oyee eeHs Hs 5ual 5ualifific icat atio ions ns and and cont contririu utition onss to t"e t"e usiness venture* and ) Gener eneral al econom onomic ic condi onditition onss. rdinarily, rdinarily, it is t"e interlay of several factors, roerly 2ei$"ted for t"e articular case 2"ic" 2ould determine t"e deductiility of t"e onus. (Euen4le X !treiff, Inc. v. Collector, 1= "il. 99, citin$ Dertens)
1) exenses, +) a 8)
A reasona reasonale le and necessar necessaryy allo2anc allo2ancee for travelin travelin$$ for for tra trave velilin$ n$ exe exens nses es "ere "ere and and ar aroa oad, d, ) 2"ile a2ay from "ome, in t"e t"e urs ursui uitt of trad trade, e, usi usine ness ss or rof rofes essi sion on 6NIRC of
1997, !ec. +8 (A) (1) (a) (ii), arran$ement and numerin$ sulied
/axayers carryin$ materials and sulies on "and 1) s"ou s"ould ld inc incllude ude in exe exens nses es t"e t"e c"a c"ar$ r$es es for for mat mater eria ials ls and sulies +) only to t"e extent t"at a) t"ey are actually consumed and used in oerations ) durin$ t"e year c) for 2"ic" t"e return is made ) rov rovid ided ed t"at t"at t"e t"e cos costt of of suc suc"" mat mater eria ials ls and and su sul lie iess a) "ave "ave not not ee eenn ded deduc ucte tedd in in det deter ermi mini nin$ n$ t"e t"e net net income for any revious year. (RR No. +, !ec. =F, arran$ement and numerin$ sulied)
Refer to a$e +, sura.
36
1)
/"e /"e cost cost of inci incide dent ntal al rea reair irss 2"ic 2"ic"" a) neit"er materially add to t"e value of t"e roerty ) nor nor a are reci cia aly ly rol rolon on$$ its its life life,, ut ut >ee >ee it in an ordinary efficient oeratin$ condition +) may e e de deducted as as ex exenses, ) rov rovid ided ed t"e t"e la lant nt or ro roer erty ty acco accoun untt a) is not increased y t"e amount of suc" exenditures Reairs 1) in t"e t"e natur aturee of rel elacem acemeents nts, +) to t"e extent t"at t"ey arrest deterioration and arecialy rolon$ t"e life of t"e roerty ) s"ou s"ould ld e c"a c"ar$ r$ed ed a$ai a$ains nstt t"e de dere reci ciat atio ionn reser reserve ve if if suc" suc" accoun accountt is >et. (RR No. +, !ec. =F, arran$ement and numerin$ sulied)
Refer to a$e +, sura. Re5uis Re5uisite itess for t"e deductiility of ordinary and necessary trade, usiness, or rofessional exenses, li>e exenses aid for le$al and auditin$ services. a. /"e /"e ex exen ensse mus mustt e e ord ordin inar aryy and and nece necess ssar aryy. . It mus mustt "av "ave een een ai aid or inc incurre urredd duri durinn$ t"e t"e taxa taxal lee year deendent uon t"e met"od of accountin$ uon t"e asis of 2"ic" t"e net income is comuted. c. It mu must e su suort orted y receits, record ords or ot" ot"er ertinent aers. (Commissio Commissioner ner of Internal Internal Revenue Revenue v, Isaela Cultural Cultural Cororation, G. R. No. 17++1, 0eruary 1+, +7)
A reasonale allo2ance for entertainment, amusement and recreation exenses, 1) durin$ t"e taxale year, +) t"at t"at are are direc directly tly connec connected ted to t"e t"e dev develo elome ment, nt, mana$ement and oeration of t"e trade, usiness or rofession of t"e taxayer, or ) t"at are directly related to or in furt"erance of t"e conduct of "is or its trade, usiness or rofession, 8) not to exceed suc" ceilin$s as t"e !ecretary of 0inance may, y y rules and re$ulations rescrie, uon recommendation recommendation of t"e Commissioner Commissioner of Internal Revenue, ) ta>in$ ta>in$ into account account t"e needs needs as 2ell as t"e secial secial circumstances, circumstances, nature and c"aracter of t"e industry, industry, trade, usiness or rofession of t"e taxayer* =) rovided , /"at any exense incurred for entertainment, amusement or recreation t"at is contrary to la2, morals, ulic olicy or ulic order s"all in no case e allo2ed as a deduction. 6NIRC of 1997, !ec. 8 (A) (1) (a) (iv), arran$ement and numerin$ sulied)
37
1) +)
It must e aid or incurred durin$ t"e taxale year. It must e a) dire direct ctly ly conn connec ecte tedd to t"e t"e devel develo ome ment nt,, mana mana$e $eme ment nt and and oer oerat atio ionn of t"e t"e trad trade, e, usi usine ness ss or rofession of t"e taxayer, or ) direct directly ly relate relatedd to to or or in in furt furt"er "eranc ancee of of t"e t"e conduct of its trade, usiness or exercise of a rofession. ) It must not e contrary to la2, morals, $ood customs, ulic olicy or ulic order. 8) It must not "ave een aid, directly or indirectly, indirectly, to an offi offici cial al or eml emloy oyee ee of t"e t"e nati nation onal al $ove $overn rnme ment nt,, or any any loca locall $overnment unit, or of any $overnment#o2ned $overnment#o2ned or controlled cororation (GCC), or of a forei$n $overnment, or to a rivate individual, or cororation, or $eneral rofessional artners"i (G), or a similar entity, if it constitutes a rie, >ic>ac> or ot"er similar ayment. ) It must e duly sustantiated sustantiated y ade5uate roof. /"e official receits, or invoices, or ills or statements of accounts s"ould e in t"e name of t"e taxayer claimin$ t"e deduction. =) /"e aroriate amount of 2it""oldin$ tax, if alicale, s"ould "ave 2it""eld t"erefrom and aid to t"e :ureau of Internal Revenue. (RR No. 1#++, !ec. 8) 7) It mus mustt not not exc exceed eed t"e t"e cei ceilin$s n$s rov roviided for for y y t"e t"e !ecretary of 0inance uon recommendation of t"e Commissioner.
1) Adv Adverti ertissin$ to stim timulat ulatee t"e t"e sale ale of merc"andise or use of services. xcet as to 5uestions of reasonaleness of amount, t"ese are deductile as usiness exenses. (General 0oods,("iliines), Inc. v.. F, 1998, Commissioner Commissioner of Internal Revenue, C/A Case No. 8F=, 0eruary F, em"asis sulied)
+) Advertis Advertisin$ in$ desi$ned desi$ned to stimulate stimulate t"e sale of merc"andise or use of services. services. /"is involves involves exenditures incurred, incurred, in 2"ole or in art, to create or maintain some form of $ood2ill for t"e taxayerHs trade or usiness of 2"ic" t"e taxayer is a memer. /"ese exenditures are not deductile as exense ut instead to e sread over a reasonale eriod of time, irresective of 2"et"er t"e taxayer is on t"e cas" or accrual asis. RA!N; A caital asset 2"ic" "as a determinale life "as een ac5uired and, t"erefore, t"e Iid., citin$ exendit exenditure ure s"ould e sread over t"e life of t"e asset. asset. (Iid., Dertens, em"asis sulied)
) Advertisin$ to romote t"e sales of s"ares of stoc> or to create a favorale cororate ima$e are not deductile. As a $eneral rule, t"e comany or usiness concerned s"all decide t"e >ind and si4e of advertisin$ andor romotional exense t"at "as to e exended to romote its roduct or ima$e su-ect to t"e follo2in$ secial re5uir re5uirem ement entss if t"e taxay taxayer er intend intendss to deduct deduct said said exens exenses es as a tax deductile exense; 1) /"e rules on sustantiation sustantiation must e follo2ed.
38 +) All ayments ayments for t"e urc"ase urc"ase of romotio romotional nal $ivea2 $ivea2ays ays,, conte contest st ri4es ri4es,, or simila similarr materi material al must must e roer roerly ly receited. ) All ayments for services suc" as radio and /@ time, rint ads, talent talent fees, fees, advertis advertisin$ in$ exertis exertisee or >no2#"o2 >no2#"o2 must e su-ect to 2it""oldin$ 2it""oldin$ tax. t"er2ise, t"e same cannot cannot e claimed as a deductile exense. (RAD No. 1#F7, No. 8)
1) +) ) 8) )
/"e amount of interest aid or incurred 2it"in a taxale year on indetedness in connection 2it" t"e taxayerHs rofession, trade or usiness* 6NIRC of s"all s"all e allo2ed allo2ed as deductio deductionn from $ross $ross income income . 6NIRC
1997, !ec. 8 (:) (1), arran$ement and numerin$ sulied
In $eneral, su-ect to certain limitations, t"e follo2in$ are t"e re5uisites for t"e deductiility of interest exense from $ross income, vi4; 1) /"ere must e an indetedness. indetedness. +) /"ere s"ould e an interest exense aid or incurred uon suc" indetedness. indetedness. ) /"e indetedness must e t"at of t"e taxayer. 8) /"e /"e inde indet ted edne ness ss must must e conn connec ecte tedd 2it" 2it" t"e t"e taxayerHs trade, usiness or exercise of rofession. ) /"e interest exense must "ave een aid or incurred durin$ t"e taxale year. =) /"e interest must "ave een stiulated in 2ritin$. 7) /"e interest must e le$ally due. F) /"e intere interest st aymen aymentt arran$ arran$eme ement nt must must not e et2een related related taxayers xxx. xxx. 9) /"e interest must not e incurred to finance etroleum oerations. 1) In case of interest incurred to ac5uire roerty used in trade, usiness or exercise of rofession, t"e same 2as not treated as a caital exenditur e.B (RR 1#+, !ec. , ara"rasin$ sulied) 11) /"e amount deducted must e 2it"in t"e limits rovided y la2.
1) Intere Interest st aid aid to fin financ ancee urc" urc"as asee of invent inventory ory,, or or ot"er2ise finance oerations. +) Interest aid on delin5uent usiness taxes. ) Interest Interest aid, aid, y an>s, an>s, loan or trust comanies comanies,, 2it"in t"e year on deosits deosits or on savin$s received for investment investment and
39 secured y interest#earin$ certificates of indetedness issued y suc" an> or comany. (RR No. +, !ec. 7F, ar. 1) a. Inte Intere rest st ex exen ense se e5u e5ual al to to P P of t"e t"e int inter eres estt inco income me su-ect to final tax. 6NIRC of 1997, !ec. 8 (:) (1), as amended y Re. Act No. 97
. If 2it"in t"e taxale year an individual taxayer reortin$ income on t"e cas" asis incurs an indetedness on 2"ic" an interest is aid in advance t"rou$" discount or ot"er2ise; 1) rovided, /"at suc" interest s"all e allo2ed as a deduction in t"e year year t"e indetedness is aid, aid, and +) rovided furt"er , /"at if t"e indetedness is ayale in eriodic amorti4ations, t"e amount of t"e rincial amorti4ed or aid durin$ t"e year s"all e allo2ed as deduction in suc" taxale year. c. If ot ot" t"e t"e tax taxayer and and t"e t"e er erson to 2"o 2"om t"e t"e ayment "as een made or is to e made are considered as related arties. d. If t"e t"e inde indet ted edne ness ss is incu incurr rred ed to fina financ ncee etr etrol oleu eum m exloration. 6NIRC of 1997, !ec. 8 (:) (+) e. Int Interes erestt in t"e t"e form orm of div dividend dendss aid aid to to ref refer errred s"are"olders. (RR No. +, !ec. 7F, ar. , RDC No. 17#71) f. Inte Intere rest st ai aid on on ear earne nedd and and uncl unclai aime medd sal salar aryy . (Euen4le X !treiff, Inc. v. Collector, 1= "il. )
$. Interest aid on indetedness used to urc"ase securities y one 2"o 2"o is not a dealer in securities. /"is is so ecause suc" interest is art of t"e ac5uisition of a caital asset . referred s"ares are considered caital re$ardless of t"e conditions under 2"ic" suc" s"ares are issued and dividends or interestsB aid t"ereon are not allo2ed as deductions from t"e $ross income of Cororations. (RR No. +, !ec. 7F, ar.** Rev. Demo. Circ. No. 17# 71) N/! AN3 CDDN/!; CDDN/!; /"e aove doctrine doctrine alies only 2it" resect resect to dividends dividends not ein$ considered as interest. interest. It does not aly 2"ere t"e cororation cororation issues scrit dividends, in 2"ic" case t"e dividends t"emselves are not considered interest, interest, ut t"e interest interest aid y a cororation cororation on t"e scrit dividend dividend is deductile interest. (RR No. +, !ec. 7F, 1st ar.) A scrit dividend is a dividend in t"e form of a romissory note.
No deduction s"all e allo2ed in resect of interest If 2it"in t"e taxale year an individual taxayer reortin$ income on t"e cas" asis incurs an indetedness on 2"ic" an interest is aid in advance t"rou$" discount or ot"er2ise; rovided, /"at suc" interest s"all e allo2ed as a deduction in t"e year t"e indetedness is aid. 6NIRC of 1997, !ec. 8 (:) (+) (a) ara"rasin$ sulied N/! AN3 CDDN/!; /"e aove is an examle of an excetion to t"e cas" met"od. /"e interest interest exense is not reco$ni4ed reco$ni4ed at t"e time it is aid, ut at t"e time 2"en t"e indetedness is aid.
40
1) At t"e otion of t"e taxayer, +) interest interest incurred incurred to ac5uire ac5uire roerty roerty used in trade, trade, usiness or exercise of a rofession, ) may e allo2ed as a deduction or treated as a caital exenditure. 6NIRC of 1997, !ec. 8 (:) (), numerin$ and arran$ement sulied
a. /axes aid or incurred, . 2it"in t"e taxale year, c. in conn connec ectition on 2it" 2it" t"e t"e tax taxay ayer erHs Hs rof rofes essi sion on,, trad tradee or usiness. 6NIRC of 1997, !ec. 8 (C) (1) N/! N/! AN3 CDDN/!; CDDN/!; /"e asic rational rationalee for allo2in allo2in$$ t"e deduc deductition on of taxes taxes aid or incur incurre redd in conne connect ctio ionn 2it" 2it" t"e t"e tax taxaye ayerHs rHs rofession, rofession, trade or usiness usiness (as 2it" ot"er deductions), deductions), is t"e accountin$ accountin$ concet of matc"in$ matc"in$ revenues 2it" exenditures exenditures.. If t"e exenditure exenditure "eled earn t"e income, t"en it s"ould e allo2ed allo2ed as a deduction. deduction. Conversely, Conversely, ifif t"e exenditure did not "el earn t"e income, t"en it s"ould not e deducted.
a. .
/"e income tax rovided for under t"e NIRC* Income taxes imosed y y aut"ority of any forei$n
country 1) ut t"is deduction s"all e allo2ed in t"e case of a taxayer 2"o does not si$nify in "is return "is desire to "ave to to any extent extent t"e t"e enefits enefits of credits credits for taxes taxes aid aid to forei$n countries* c. state and donorHs taxes* d. /axes /axes assessed assessed a$ainst a$ainst local enefits of a >ind tendin$ to increase t"e value of t"e roerty assessed. 6NIRC of 1997, !ec. 8 (C) (1), arran$ement and numerin$ sulied
e. /axes /axes on sale, arter or exc"an$e of s"ares of stoc> listed and traded t"rou$" t"e local stoc> exc"an$e or t"rou$" initial ulic offerin$. 6Iid., !ec. 1+7 (3) f. 0inal income taxes, suc" as t"e resumed caital $ains tax on t"e disosition of real roerty, and t"e caital $ains tax on t"e disosition of s"ares of stoc> not listed and traded in t"e stoc> exc"an$e.
Interest incurred or aid y t"e taxayer on all unaid usiness related taxes s"all s"all e fully deductile deductile from $ross income and s"all not e su-ect to t"e limitation on deductions deductions "eretofore mentioned. /"us, suc" suc" intere interest st exen exense se incurr incurred ed or aid aid s"all s"all not e dimini diminis" s"ed ed y t"e ercenta$e of interest income earned 2"ic" "ad een su-ected to final 2it""oldin$ tax. 6RR No. 1#+, !ec. 8(c)
41 Interest on delin5uent taxes are deductile as t"ey are considered as interest on indetedness and not as taxes. (Commissioner of Internal Revenue v. rieto, 19 "il. 9+* Commissioner of Internal Revenue v. alanca,
/axes assessed a$ainst local enefits of a >ind tendin$ tendin$ to increase increase t"e value value of t"e roerty roerty assessed are not deductile from $ross income. 6NIRC of 1997, !ec. 8 (C) (1)
a. A tax credit credit reduces reduces t"e taxayer taxayerTs Ts liailit liailityy dollar dollar for dollar, CDAR3 to a deduction 2"ic" reduces taxale income uon 2"ic" t"e tax liaility is calculated. . A tax tax cred creditit diff differ erss from from dedu deduct ctio ionn to t"e t"e exte extent nt t"at t"at t"e t"e former is sutracted from t"e tax, &'I t"e latter is sutracted from (D.. 'oldin$ 'oldin$ Cororati Cororation on v. t"e income income efore efore t"e tax is comuted comuted.. (D.. 18, Au$ust Au$ust 17, 199F Commissioner Commissioner of Internal Revenue, Revenue, C/A Case No. 18, citin$ :lac>Ts a2 3ictionary, =t" ed.)
/"ere must e comliance 2it" t"e $eneral re5uisites for deductiility as alied to losses; 1) /"er /"eree must must e e a sec secifific ic ro rovi visi sion on of of la2 la2 all allo2in o2in$$ t"e t"e deduc deductio tions, ns, since since deduct deductio ions ns do not exist exist y imlic imlicati ation on . (Atlas Consoli Consolidated dated Dinin$ Dinin$ and 3evelo 3evelomen mentt Cororati Cororation on v. Commiss Commissione ionerr of Internal Revenue, Revenue, #+=911,
+)
/"ere must e roof of entitlement to t"e deduction s.
(Atlas Consolidated, Consolidated, sura* aer Industries Cororation of t"e "iliines v. Court of Aeals, et al .,., + !CRA 88) ) /"e deductions must not "ave een 2aived. (RR No. +, !ec. 7=)
8) /"e 2it""oldin$ and ayment of t"e tax re5uired must e s"o2n. 6NIRC of 1997, !ecs. 8 (E), F and F1
,AR /"e secific re5uirements of deductiility of losses must e met; 1) /"ey /"ey must must e e ordi ordina nary ry los lossses t"a t"att are are incu incurr rred ed y a taxale entity as a result of its day to day oerations conducted for rofit or ot"er2ise, or casualty losses. +) /"ey must "ave een losses t"at are actually sustained durin$ t"e taxale year. ) Dust Dust not not "av "avee een een com come ens nsat ated ed for for y y ins insuran urance ce or or ot"er forms of indemnity. 8) If t"ey are casualty losses, t"ey are of roerty connected 2it" trade, usiness, or rofession and t"e lose arises from fires, storms, s"i2rec>, or ot"er casualties, or from roery, t"eft or eme44lement. ) Dust Dust not not "ave "ave een een claim claimed ed as a dedu deduct ctio ionn for esta estate te tax uroses in t"e estate tax return . 6NIRC of 1997, !ec. 8 (3) (1)
42
/"es /"esee aris arisee only only from from t"e t"e disosition of caital assets and may e deductile only from caital $ains. /"ese may e deductile only from t"e ordinary income of a dealer in securities. 0or one 2"o is not a dealer in securities, t"ese losses may e deducted only from caital $ains.
/"ese may e deducted only from t"e ordinary income of a dealer in securities. 0or one 2"o is not a dealer in securities, t"ese losses may e deducted only from caital $ains. . /"ese may e deducted only from 2a$erin$ $ains. $ains. Gamlin$ losses losses may e deducted deducted only from $alin$ 2innin$s.
1) /"e net oerat oeratin in$$ loss loss of t"e usine usiness ss or enterrise, +) for any taxale year immediately recedin$ t"e current taxale year, ) 2"ic 2"ic"" "as "as not not een een rev revio ious usly ly offs offset et as deduction from $ross income, 8) s"all e carried over as a deduction from $ross income, ) for t"e next t"ree t"ree () consecut consecutive ive taxale taxale years immediately follo2in$ t"e year of suc" loss; =) rovided, "o2ever, /"at any net loss incurred in a taxale year durin$ 2"ic" t"e taxayer 2as exemt from income tax s"all not e allo2ed as a deduction xxx, 7) rovided rovided,, furt"er, furt"er, /"at a net oeratin$ loss carry#over s"all e allo2ed only F) if t"ere "as een no sustantial c"an$e in t"e o2ners"i of t"e usiness or enterrise. 6NIRC of 1997, !ec. 8 (3) (), numerin$, arran$ement and ara"rasin$ sulied
1) Not less t"an 7P in nominal value of outstandin$ issued s"ares, if t"e usiness is in t"e name of a cororation, is "eld y or on e"alf of t"e same ersons* or +) Not less t"an 7P of t"e aid#u caital of t"e cororation, if t"e usiness is in t"e name of a cororation, is "eld y or on e"alf of t"e same ersons. 6NIRC of 1997, !ec. 8 (3) VW, ara"rasin$ sulied
1) Any Any indi indivi vidu dual al (in (incl clud udin in$$ esta estate tess and and trus trusts ts)) en$a en$a$e $edd in trade or usiness or in t"e exercise of "is rofession.
43 +) 3om 3omesti esticc and and fore foreii$n coro orora ratitioons su-ec -ectt to t"e t"e normal income tax (e.$., manufacturers and traders) or referential tax rates under t"e Code (e.$. rivate educational institutions, "ositals, +., !ec. and re$ional oeratin$ "ead5uarters ). (RR No. 18#+1*, !ec. +., 8, 1st ar., ar., numerin$ and arran$ement sulied)
1) ffs ffs"ore ore :an>i n>in$ %nit %nit (:% (:%)) of a fore foreii$n an an>i >in$ n$ cororation, and 0orei$n Currency 3eosit %nit (0C3%) of a domestic or forei$n an>in$ cororation, duly aut"ori4ed as suc" y t"e :an$>o !entral n$ iliinas (:!).
+) An ente enter rririse se re$ re$is iste tere redd 2it" 2it" t"e t"e :oar :oardd of of Inve Invest stme ment ntss (:I) 2it" resect to its :I#re$istered activity en-oyin$ t"e Income /ax 'oliday incentive. incentive. Its accumulated accumulated net oeratin$ losses losses incurred or sustained durin$ t"e eriod of suc" Income /ax 'oliday s"all not 5ualify for uroses of t"e NC. ) An ente enter rri rise se re$i re$ist ster ereed 2it" it" t"e "i "iliin inee conomic conomic Mone Aut"orit Aut"orityy (MA) (MA) ursuant ursuant to Re. Act No. 791=, 791=, amended, 2it" resect resect to its MA#re$istered MA#re$istered usiness activity. activity. Its accumulated net oeratin$ losses incurred or sustained durin$ t"e eriod of its MA re$istration s"all not 5ualify for uroses of t"e NC. 8) An ente enter rri risse re$is e$iste terred unde underr Re. e. Act No. 7++7 7++7,, ot"er2ise >no2n as t"e :ases Conversion and 3eveloment Act of 199+, e.$. !:DA#re$istered enterrises, 2it" resect to its re$istered usiness usiness activity activity.. Its accumulated accumulated net oeratin$ oeratin$ losses incurred incurred or sustained durin$ t"e eriod of its said re$istered oeration s"all not 5ualify for uroses of t"e NC. ) 0ore 0orei$ i$nn cor coror orat atio ions ns en$ en$a$ a$ed ed in in inte intern rnat atio iona nall s"i s"ii in$ n$ or air carria$e usiness in t"e "iliines. "iliines. =) In $ene $enera ral,l, any any ers erson on,, natu natura rall or -uri -uridi dica cal,l, en-o en-oyi yin$ n$ exemtion from income tax, ursuant to t"e rovisions of t"e /ax /ax Code or any secial la2, 2it" resect to its oeration durin$ t"e eriod for 2"ic" 2"ic" t"e aforesai aforesaidd exemtion exemtion is alica alicale. le. Its accumulate accumulatedd net oeratin$ losses incurred or sustained durin$ t"e said eriod s"all not 5ualify for uroses of t"e NC.Y (RR No. 18#+1, !ec. 8.1 to 8.=) 7) An ind indiv ivid idua uall 2"o 2"o clai claims ms t"e t"e 8P 8P ot otio iona nall stan standa dard rd deduction s"all not simultaneously claim deduction of t"e NC, rovided t"at t"e t"ree#year re$lementary eriod s"all continue to run not2it"standin$ not2it"standin$ t"e fact t"at t"e aforesaid individual availed of t"e 8P otional standard deduction durin$ t"e said eriod . 6Iid., !ec. +., NIRC of 1997, !ec. 8 (), as amended y Re. Act No. 98
a. /"ere must e an existin existin$$ indeted indetedness ness due to t"e taxayer 2"ic" must e valid and le$ally demandale. . /"e same same must must e conne connect cted ed 2it" 2it" t"e taxay taxayerHs erHs trade, usiness or ractice of rofession. c. /"e same same must must not e sustai sustained ned in a transa transacti ction on entered into et2een related arties. d. /"e same must must e actually actually c"ar$ed c"ar$ed off t"e oo>s oo>s of accounts of t"e taxayer as of t"e end of t"e taxale year. e. /"e det must e actually ascertained to e 2ort"less and uncollectile durin$ t"e taxale year.
44 f. /"e dets dets are uncollect uncollectile ile desite desite dili$ent dili$ent effort effort exerted y t"e taxayer. 6NIRC of 1997, !ec. 8 () (1)* RR No. #99, !ec. , reiterated reiterated in RR No. +#++* +#++* "iliine Refinin$ Cororation v. Court of Aeals, et al al .,., += !CRA ==7
a. Name Name $iven $iven to t"e t"e certif certific icat atee evid eviden enci cin$ n$ t"e t"e alle alle$e $edd det det.. . A fixed maturity date for t"e alle$ed det. c. /"e sources sources of t"e detor detor cororati cororationTs onTs reaymen reaymentt of t"e alle$ed loan. d. /"e creditorHs ri$"t to enforce reayment of t"e alle$ed loans. e. /"e increase of t"e individual taxayerTs control over t"e detor cororation as a result of t"e advances. f. /"e creditor suordination suordination to t"e $eneral creditors of t"e detor cororation. $. /"e intention of t"e arties to t"e alle$ed loan. ". !ufficient caitali4ation caitali4ation of t"e detor cororation. i. /"e roortion roortion of t"e advances advances made in relation relation to t"e s"are"olderTs interest in t"e alle$ed detor cororation* -. If a true lender, t"e creditorHs concern 2it" collectin$ collectin$ interest on t"e advances. >. Aility of t"e detor cororation to otain loans from outside lendin$ institutions. l. %se of advances to urc"ase caital assets. m. 0ailure of t"e detor cororation to ay t"e alle$ed det on t"e Commissioner of Internal Revenue, C/A Case due date. "ilex Dinin$ Cororation v. Commissioner No. +, +, Au$ust +1, 199F 199F citin$ citin$ state of Nixon v. %.!., 8=8 0+d 98 (CA, 197+)* 0ernand 0ernande4 e4 'ermanos 'ermanos,, Inc. v. Commiss Commissione ionerr of Internal Internal Revenue, Revenue, +9 !CRA +, affirmed in "ilex Dinin$ Cororation v. v. Commissioner Commissioner of Internal Revenue, G. R. No. 18F1F7, Aril 1=, +F
Refer to a$e +8, sura.
a. /"e roerty su-ect to dereciation must e roerty 2it" life of more t"an one taxale year. . /"e roer roerty ty derec derecia iated ted must must e e use usedd in in trad trade, e, usiness or exercise of a rofession. c. /"e dereciation met"od used must e reasonale and consistent. d. /"e dereciation must "ave een c"ar$ed durin$ t"e taxale year . (RR No. +, !ec. 11) e. A derecia dereciation tion sc"edul sc"edulee s"ould s"ould e attac"ed attac"ed to t"e income tax return. (Iid., !ec. 11) Good2ill may or may not e su-ect to dereciation. dereciation. If cost is aid or incurred in t"e ac5uisition, ac5uisition, t"en it may e su-ect to dereciation. n t"e ot"er "and, $ood2ill t"at is internally $enerated may or may may not not e su-e u-ect ct to der derec ecia iatition on dee deend ndin in$$ on cert certai ainn considerations.
45
/"e annual dereciation c"ar$e is calculated y allocatin$ t"e amount to e dereciated e5ually over t"e numer of years of t"e estimated useful life of a tan$ile. !trai$"t#line dereciation results in a constant c"ar$e over t"e useful ar.. =+, rd sentence, effective
It is an accelerated met"od of dereciation 2"ic" 2rites off a relatively lar$er amount of t"e assetHs cost nearer t"e start of its useful life t"an does t"e strai$" strai$"tt line. line. /"e /"e dimini diminis"i s"in$ n$ alanc alancee met"o met"odd result resultss in a decreasin$ c"ar$e over t"e useful life.B (IA!A! 1=, ar. =+, 8t" sentence, effective
An accelerated met"od of dereciation t"at rovides "i$"er dereciation exense in t"e earlier years and lo2er c"ar$es in t"e later years. /"e /"e foll follo2 o2in in$$ met" met"od odss if ar arov oved ed y t"e t"e Commissioner Commissioner of Internal Revenue may also e used; 1) Aor Aortio tionme nment nt to to units units of rod roduct uction ion +) %nit %nitss of of rod roduc uctition on met met"o "odd ) 'our 'ourss of use use met met"o "odd 8) Reva Revalu luat atio ionn met met"o "odd ) !in> !in>in in$$ fun fundd met met"o "odd
1) taxale year +)
Cont Contri riu utition onss or $ift $iftss actu actual ally ly ai aidd or made made 2it 2it"i "inn t"e t"e
to, or for t"e use of a) t"e t"e Gov Gover ernm nmen entt of of t"e t"e "il "ili ii ine ness or or any any of of its its a$encies or any olitical sudivision sudivision t"ereof (1) (1) excl exclus usiv ivel elyy for for ul ulic ic ur uros oses es,, ) or to accredited domestic cororation or associations or$ani4ed and oerated exclusively (1) (1) for for reli reli$i $iou ous, s, c"a c"aririta tal le, e, sci scien entitifific, c, you yout" t" and sorts sorts develo develome ment, nt, cultu cultural ral or educat educatio ional nal uroses or for t"e re"ailitation re"ailitation of veterans, c) or to social 2elfare institutions, or to non# $overnment or$ani4ations, or$ani4ations,
46 ) in acco accord rdan ance ce 2it" 2it" rule ruless and re$u re$ula latition onss romu romul$ l$at ated ed y t"e t"e !ecre ecreta tary ry of 0ina 0inanc nce, e, uon uon reco recomm mmen enda datition on of t"e t"e Commissioner, 8) no art art of t"e t"e net net inco income me of 2"ic 2"ic"" inu inure ress to to t"e t"e ene enefifitt of any rivate stoc>"older or individual ) in an am amount no not in in ex excess of a) ten ten erc ercen entt (1P (1P)) in in t"e t"e case case of an indi indivi vidu dual al,, ) and five ercent (P) in t"e case of a cororation, of t"e taxayerTs taxale income (1) derived from trade, usiness or rofession as comuted (+) 2it"out t" t"e e enefit of of t" t"is an and t" t"e follo2in$ suara$ra"s 6NIRC of 1997, !ec. 8 (') arran$ement and numerin$ sulied =) afte afterr com comlilian ance ce 2it 2it"" t"e t"e su sust stan antitiat atio ionn re5u re5uirirem emen ents ts
1)
artial deductions; a) Contri Contriut ution ionss or $ifts $ifts to t"e $overn $overnmen mentt or accredited NGs. +) 3educted in full; a) 3onations to t"e $overnment, under certain conditions. ) 3onations to certain forei$n institutions or international or$ani4ations. c) 3ona 3onatition onss to accr accred editited ed non non$o $ove vern rnme ment nt or$ or$an ani4 i4at atio ions ns,, under certain conditions. d) 3onations of ri4es to at"letes. ) 3ona 3onatition onss t"a t"att are are dedu deduct cti ile le u to t"e t"e ext exten entt of of 1 1P. P. a) 3ona 3onatition onss unde underr t"e t"e ado adot# t#a# a#sc sc"o "ool ol ro ro$r $ram am ) 3ona 3onatition onss for for acc accre redi dite tedd man mano2 o2er er tra train inin in$$ N/! AN3 CDDN/!; Not all donations to t"e $overnment are fully deductile. deductile. 0urt"ermore, 0urt"ermore, not all donations donations t"at are exemt from from donorHs taxes are allo2ed as deductions from $ross income. olitical contriutions made y individuals, t"at are reorted to t"e Commission on lections (CDC) are exemt from donorHs taxes ut not allo2ed as deductions from $ross income.
a.
An eml emloy oyer er esta estal lis is"i "in$ n$ or main mainta taiinin$ nin$ a ens ensio ionn
trust, . to rovide for t"e ayment of reasonale ensions to "is emloyees, c. s"all s"all e allo2ed allo2ed as a deduction deduction (in addition addition to t"e contriutions to suc" trust durin$ t"e taxale year to cover t"e ension ension liaility accruin$ durin$ t"e year, allo2ed as a deduction for ordinary and necessary trade, usiness or rofessional exenses exenses ),
47 d. a reasonale amount transferred or aid into suc" trust durin$ t"e taxale year in excess of suc" contriutions, e. ut only if suc" amount 1) "as "as not not t"e t"ere reto tofo fore re ee eenn allo allo2a 2al lee as a deduction, and +) is aortioned in e5ual arts over a eriod of ten (1) consecutive years e$innin$ 2it" t"e year in 2"ic" t"e transfer or ayment is made.B 6NIRC of 1997, !ec. 8 (<), arran$ement, numerin$, ara"rasin$ and 2ords in italics sulied
A fixed ercenta$e ercenta$e deduction 2"ic" is allo2ed certain taxayers 2it"out re$ard to any actual exenditures. %nder t"e NIRC, t"e standard otional deduction is an amount a. not not exc excee eedi din$ n$ fort fortyy er erccent ent (8 (8P) P) of t"e t"e of t"e 5ualified individual taxayer sales or $ross receits of t"e 5ualified individual taxayer or . in t"e t"e case case of 5ual 5ualifi ified ed cor corora oratio tions ns not not exc exceed eedin in$$ forty forty erce ercent nt (8P (8P)) of t"eir t"eir . 6NIRC of 1997, !ec. 8 (), as amended y Re. Act No. 98, !ec. , em"asis, arran$ement and numerin$ sulied
/"e /"e !3 !3 allo2ed to individual individual taxayers s"all e a maximum maximum of forty ercent (8P) of durin$ t"e taxale year (RR No. 1=#+F, !ec. , 1st ar., 1st sentence, sentence, em"asis em"asis sulied) sulied) 2"ic" s"all e determined deendin$ uon t"e met"od of accountin$ used for reco$ni4in$ income and deductions; 1) Accrual a asis of of ac accountin$ +) Cas" asis ) erc ercen enta ta$e $e of coml omlet etio ionn asi asis, s, etc. etc.
If t"e individual is on t"e accrual asis of accountin$ for "is income and deductions, t"e !3 s"all e ased on t"e $ross sales durin$ t"e taxale year. (RR No. 1=#+F, !ec. , 1st ar., +nd sentence) N/! AN3 AN3 CDDN/!; /"e $ross salesB is t"e total sales t"at are reco$ni4ed, reco$ni4ed, 2"et"er collected or not. Cost of sales or cost of services are not allo2ed as deductions.
If t"e individual emloys t"e cas" asis of accountin$ for "is income and deductions, t"e !3 s"all e ased on t"e $ross receits durin$ t"e taxale year. (RR No. 1=#+F, !ec. , 1st ar., last sentence) N/! AN3 CDDN/!; /"e $ross receitsB refer to t"e total ayments received for t"e sales 2it"out deductin$ t"e cost of sales or cost of services.
1) Gros Grosss sal sales es are are t"os t"osee reco reco$n $ni4 i4ed ed 2"e 2"et" t"er er ai aidd or not not &'I &'I $ross receits refer to t"ose t"at are actually aid* +) Allo Allo2a 2anc ncee for for ad ad det detss are are reco reco$n $ni4 i4ed ed as as a dedu deduct cti iililitityy from from $ross sales &'I no suc" reco$nition is allo2ed from $ross receits.
In case of 5ualified cororate taxayers (domestic and resident
48 forei$n forei$n cororatio cororations) ns) t"e !3 allo2ed allo2ed s"all s"all e in an amount not exceedi exceedin$ n$ forty ercent (8P) of t"eir $ross income. (RR No. 1=#+F, !ec. 8, 1st ar.)
1) /"e /"e !3 !3 for indi indivvidual dualss is dee deend nden entt uon on t"e t"e met"o t"od of accoun accountin tin$$ used used (suc" (suc" as cas" cas" asis asis or accrua accrual)l) &'I &'I t"e !3 !3 for cororations does not consider t"e met"od of accountin$. +) /"e /"e asi asiss of t"e t"e !3 !3 for for indi indivi vidu dual alss is eit" eit"er er $ros $rosss sal sales or or $ross receits &'I t"at for cororations is t"e $ross income. ) !inc !incee t"e t"e asi asiss of t"e t"e !3 !3 for for ind indiv ivid idua uals ls is is eit" eit"er er t"e t"e $ro $ross ss sales or $ross receits, no deduction is allo2ed for cost of sales or cost of services &'I since t"at for t"e cororation is $ross income, it is allo2ed to deduct cost of sales or cost of services. 8) An ind indiv iviidual ual 2"o 2"o avai availls of t"e t"e !3 !3 need need not not su sum mit "is "is financial statements statements 2it" "is tax returns &'I a cororation is still re5uired to sumit its financial statements 2"en it files its annual income tax returns .
!ec. += of t"e Code rovides t"at ? 0or uroses of comutin$ t"e distriutive s"are of t"e artners, t"e net income of t"e G s"all e comuted in t"e same manner as a cororation.B As suc", a G may claim eit"er t"e itemi4ed
deductions allo2ed allo2ed under !ection 8 of t"e Code or in lieu t"ereof, it can ot to avail of t"e !3 allo2ed to cororations in claimin$ t"e deductions in an amount not exceedin$ forty ercent (8P) of its $ross income. (RR No. +#+1 reiteratin$ RR No. 1=# +F, !ec. , +nd ar. in relation to t"e NIRC of 1997, !ec. +=)
'o2ever, if t"e G availed of itemi4ed deductions, t"e artners are not allo2ed to claim t"e !3 from t"eir s"are in t"e net income ecause t"e !3 is a roxy for all t"e items of deductions allo2ed in arrivin$ at taxale income. If t"e G avails of !3 in comutin$ its net income, t"e artners comrisin$ it can no lon$er claim furt"er deduction from t"eir s"are in t"e said net income. (RR No. +#+1, !ec. + reiteratin$ and amendin$ RR No. 1=#+F, !ec. =)
/"e taxayer must c"oose !3 y tic>in$ t"e ox on t"e return, if "e (it) does not so it is deemed to c"osen t"e itemi4ed deduction. deduction. /"e taxayer could not c"an$e from !3 to itemi4ed deduction once c"osen for a articular year. (RR No. +#+1, !ec. amendin$ RR No. 1=#+F, !ec. 7, 1st to rd ars.)
/"ere s"all e allo2ed allo2ed a asic asic ersonal ersonal exemtion exemtion amountin$ amountin$ to 0ifty t"ousand t"ousand esos esos (,) for eac" individual taxayer. In t"e case of married individuals 2"ere only one of t"e souse is derivi derivin$ n$ $ross $ross incom income, e, only only suc" suc" sous sousee s"all s"all e allo2 allo2ed ed t"e erson ersonal al exemtion. 6NIRC of 1997, !ec. (A), as amended y Re. Act No. 98* RR No. +# 9F, !ec. +.79 (I) (1) (a), as amended y RR No. 1#+F N/! N/! AN3 CDDN/! CDDN/!;; /"ere /"ere is a sustantia sustantiall c"an$e in concet concet occasioned y Re. Act No. 98 2"ic" removed t"e distinctions et2een t"e concets
49 of sin$le, married and "ead of t"e family for urose of availin$ of t"e asic ersonal exemtion.
/"ese are t"e exemtions in addition to t"e asic ersonal exemtions t"at are $rante $rantedd to certai certainn indiv individu iduals als 2"o "ave "ave deend deendent entss t"at t"at 5ualif 5ualifyy t"em t"em for t"is t"is exemtion. An individual, 1) 2"et"er si sin$le or ma married, +) s"all all e all allo2ed o2ed an addi ddition tional al exem exemt tiion of /2enty enty##0iv 0ive /"ousand esos (+,.) ) for for eac" eac" 5ual 5ualififie iedd dee deend nden entt c"il c"ild, d, 8) rov roviided t"at t"at t"e t"e tota totall num numer er of dee deend nden ents ts for for 2"ic "ic" additional exemtions may e claimed a) s"al s"alll not not exceed ceed four our (8) (8) dee deend nden ents ts.. 6NIRC of 1997, !ec. (:), as amended y Re. Act No. 98* RR No. +#9F, !ec. +.79 (I) (1) (), 1st ar., as amended y RR No. 1#+F, arran$ement and numerin$ sulied N/! AN3 CDDN/!; It is clear t"at under t"e amendment, t"at sin$le individuals may no2 claim for t"e additional exemtions. 0urt"ermore, t"e concet of "ead of a family does not find alication anymore.
1) !enior !enior citi4 citi4ens ens s"all s"all e treate treatedd as as dee deende ndents nts rovi rovided ded for in t"e National Internal Revenue Code, as amended, and as suc", individual taxayers carin$ for t"em, e t"ey relatives or not s"all e accorded t"e rivile$es $ranted y t"e Code insofar as "avin$ deendents are concerned. 6Re. Act No. 78+, as amended y Re. Act 9+7, /"e xanded !enior Citi4ens Act of +B, !ec. (a), last ar.
+) Addi Additition onal al exe exem mtition onss for for dee deend nden entt fost foster er c"i c"ild ld und under er Reulic Act Act No. 11=, t"e 0oster Care Act of +1+. /"e term deendentB under !ection (:) of t"e NIRC of 1997 2as amended to include a 0oster C"ild.B A 0oster 0oster arent s"all e allo2ed an additional exemtion exemtion of /2enty /2enty 0ive /"ousand esos (+,.) for eac" 5ualified deendent, rovided "o2ever, t"at t"e total numer of deendents for 2"ic" additional exemtions may e claimed s"all not exceed four (8) as rovided for y Reulic Act No. 98. /"e /2enty 0ive /"ousand esos (+,.) additional exemtion for a 0oster C"ild s"all e allo2ed only if t"e eriod of foster care is at least a continuous eriod of one (1) taxale year. If t"e taxayer marries or s"ould "ave additional deendent(s) durin$ t"e taxale year, t"e taxayer may claim t"e corresondin$ additional exemtions, as t"e case may e, in full for suc" year . 6NIRC of 1997, !ec. (C), 1st ar. 1) If t"e t"e eml emloy oyeee s"oul ould "av "ave addi dditio tional dee deend nden entt (s), (s), as defined aove, +) durin$ t"e taxale year, ) "e may may cla claim im t"e t"e cor corre res son ondi din$ n$ add addititio iona nall exem exemt tio ion, n, as as t"e t"e case may e,
50 a)
in full for suc" year. 6RR +#9F, !ec. +.79 (I) (1) (), 8t" ar.,
nd
+ sentence, sentence, as amended y RR No. 1#+F, arran$ement arran$ement and numerin$ sulied
1) Dust e en$a$ed en$a$ed in trade, trade, usin usiness, ess, or in t"e exercise exercise of a rofession in t"e "iliines. "iliines. +) /"e country country of 2"ic" 2"ic" "e "e is a su-ect su-ect or citi4en citi4en s"ould s"ould $rant $rant exemtions to citi4ens of t"e "iliines not residin$ in suc" country (t"e concet of recirocity). ) /"e amount amount of t"e t"e ersonal ersonal exemtio exemtionn to 2"ic" 2"ic" t"e nonresident alien individual individual is entitled is in t"e amount e5ual to t"e exemtions allo2ed in t"e income tax la2 in t"e country of 2"ic" "e is a su-ect or citi4en, to citi4ens of t"e "iliines not residin$ in suc" country. 8) /"e amount of t"e ersonal exemtion s"ould not exceed t"e amount fixed under t"e /ax Code as t"e exemtion for citi4ens or residents of t"e "iliines. ) 'e files in t"e "iliines a true and accurate return of t"e total 1997, !ec. income received y "im from all sources in t"e "iliines . 6NIRC of 1997, (3), arran$ement and numerin$ sulied
Not deductile are remiums aid on any life insurance olicy 1) coverin coverin$$ t"e life life of any offic officer er or emlo emloyee, yee, or or of any any erson erson financially interested in any trade or usiness carried on y t"e taxayer, individual or cororate, +) 2"en t"e taxayer is directly or indirectly a eneficiary under suc" olicy. 6NIRC of 1997, !ec. = (A) N/! AN3 CDDN/! CDDN/!;; /"e remiums remiums may e deductile deductile as an ordinary ordinary and necessary exense if t"e insurance 2as ta>en as art of t"e emloyeeHs comensation ac>a$e and t"e desi$nated eneficiary is not t"e emloyer.
/"us, interest ayments made to arents#in#la2, rot"ers or sisters#in la2, as 2ell as made made to all all >inds of cousins, cousins, uncles and aunts may e deductile from $ross income.
51
. If a loss results from t"e exc"an$e, t"e loss is not allo2ed to e deducted from $ross income ecause t"e loss is not yet reali4ed. If a loss results, from t"e disosition of t"e roerty received as a result of t"e exc"an$e exc"an$e,, t"e loss maye maye deductile deductile if t"e taxayer taxayer is a cororation cororation ut not if "e is an individual.
3irectorHs fees are considered as included as art of comensation comensation income, and taxale as suc", if t"e director is at t"e same time, an emloyee of t"e emloyercororation.B emloyercororation.B 6RR No. +#9F, !ec. +.7F.1 (A), +nd ar. (=) Comensation may e aid in money, or in some medium ot"er t"an money, as for examle, stoc>s, onds or ot"er forms of roerty. 6RR No. +#9F, !ec. +.7F7.1 (A) (1), 1st sentence
/"us, t"ey are su-ect to tax unless t"ere is a secific rovision of la2 t"at exemts t"em.
52
/"e term Jde minimisH enefits 2"ic" are exemt from t"e frin$e enefits tax s"all, in $eneral, e limited to facilities or rivile$es furnis"ed or offered y an emloyer to "is emloyees t"at are of relatively small value and are offered or furnis"ed y t"e emloyer merely as a means of romotin$ t"e "ealt", $ood2ill, contentment, or efficiency of "is emloyees suc" as t"e follo2in$; 1) Doneti4ed unused vacation leave credits of rivate emloyees not exceedin$ ten (1) days durin$ t"e year and t"e moneti4ed value of leave credits aid to $overnment officials and emloyees* +) Dedical cas" allo2ance to deendents of emloyees not exceedin$ 7. er emloyee er semester or 1+ er mont"* ) Rice susidy of 1,. or one (1) sac> of #>$. rice er mont" amountin$ to not more t"an 1,.* 8) %niforms and clot"in$ allo2ance not exceedin$ ,. er annum* ) Actual yearly medical enefits not exceedin$ 1,. er annum* =) aundry allo2ance not exceedin$ er mont"* 7) mlo mloye yees es ac"ie ac"ieve vemen mentt a2ards a2ards,, e.$. e.$. for len$t len$t"" of servic servicee or safety safety ac"ievement, 2"ic" must e in t"e form of a tan$ile ersonal roerty ot"er t"an cas" or $ift certificate, 2it" an annual monetary value not exceedin$ 1,. received y an emloyee under under an estal estalis is"ed "ed 2ritte 2rittenn lan lan 2"ic" 2"ic" does does not disc discrim rimina inate te in favor favor of "i$"l "i$"lyy aid aid emloyees* F) Gifts $iven durin$ C"ristmas and ma-or anniversary celerations not exceedin$ , er emloyee er annum* 9) 0lo2ers, 0lo2ers, fruits, fruits, oo>s oo>s,, or similar similar items items $iven $iven to emloyee emloyeess under under seci secial al circumstances, e.$. on account of illness, marria$e, irt" of a ay, etc.* and 1) 3aily 3aily meal allo2anc allo2ancee for overtim overtimee 2or> not not exceed exceedin$ in$ t2enty t2enty five five ercen ercentt (+P) of t"e asic minimum minimum 2a$e. 2a$e. 6 RR #9F, !ec. +. (C), last ar., as amended y RR. No. 1# +, RR No. #+F* RR No. #+11* RR No. and RR No. F#+1+)
Gross enefits received y officials and emloyees of ulic and rivate entities; rovided, "o2ever, /"at t"e total exclusion s"all not exceed /"irty t"ousand esos (,) 2"ic" s"all cover; 1) :enefits received y officials officials and emloyees of t"e national and local $overnment ursuant to Reulic Act No. ==F=* +) :enefits received y emloyees ursuant to residential residential 3ecree No. F1, as amended y Demorandum rder No. +F, dated Au$ust Au$ust 1, 19F=* ) :enefi :enefits ts receiv received ed y offic official ialss and emlo emloyee yeess not covere coveredd y residential .3ecree No. F1, as amended y Demorandum rder No. +F, dated Au$ust 1, 19F=* 19F=* and 8) t"er enefits enefits suc" suc" as roductivity roductivity incentives and C"ristmas onus; rovided, rovided, furt"er, /"at t"e ceilin$ of /"irty /"ousand esos (,.) may e increased t"rou$" rules and re$ulations issued y t"e !ecretary of 0inance, uon recommendation of t"e Commissioner of Internal Revenue, after considerin$ amon$ ot"ers, t"e effect on t"e same of t"e inflation rate at t"e end of t"e taxale year. 6NIRC of 1997, !ec. + (:) (7) (e)
53 /"e amount of remiums not to exceed /2o t"ousand four "undred esos (+,8) er family or /2o "undred esos (+) a mont" aid durin$ t"e taxale year for "ealt" andor "ositali4ation insurance ta>en y t"e taxayer for "imself, includin$ "is family, s"all e allo2ed as a deduction from "is $ross income; rovided, /"at said family "as a $ross income of not more t"an /2o "undred fifty t"ousand esos (+,) for t"e taxale taxale year; rovided, finally , /"at in t"e case of married taxayers, only t"e souse claimin$ t"e additional exemtion for deendents s"all e entitled to t"is deduction. 6NIRC of 1997, !ec. 8 (D)
54
non#resident aliens not en$a$ed in trade or usiness
55
/"e entire amount of $ain or loss uon t"e sale or exc"an$e of roerty s"all e reco$ni4ed. 6NIRC of 1997, !ec. 8 (c) (1) N/! AN3 AN3 CDDN/!; If $ains are reco$ni4ed, reco$ni4ed, t"e $ains s"all e taxale. taxale. If $ains are not reco$ni4ed reco$ni4ed t"ey are not $oin$ to e taxed. If losses are reco$ni4ed t"ey s"all e allo2ed as deductions from $ross income. If t"e losses are not reco$ni4ed, t"ey are not allo2ed to e deducted from $ross income.
1)
Gains Gains reco reco$ni $ni4e 4edd ut loss loss not not reco reco$ni $ni4ed 4ed in transa transacti ctions ons et2ee et2eenn relate relatedd artie arties. s. 6NIRC of
1997, !ec. = (:)
+)
No $ain $ain or loss loss reco$n reco$ni4e i4edd 2"ere 2"ere t"ere t"ere is an exc"an exc"an$e $e solely solely in >ind >ind a) if in urs ursua uanc ncee of of a lan lan of mer$ mer$er er or cons consol olid idat atio ionn ) or 2"er 2"eree t"e one one exc" exc"an an$i $in$ n$ to$e to$et" t"er er 2it" 2it" ot"e ot"ers rs not not excee exceedi din$ n$ four four (8) (8) are ale ale to otain control of t"e cororation. 6Iid.,, !ec. 8 (C) (+) ) Gain Gain reco$n reco$ni4e i4edd ut loss loss not reco$n reco$ni4e i4edd 2"ere 2"ere t"e exc"an exc"an$e $e is not solely solely in >ind. >ind. 6Iid., !ec. 8 (C) () N/! AN3 AN3 CDDN/!; An exc"an$e solely solely in >ind is an exc"an$e of roerty roerty for roerty. roerty. 0or examle s"ares of stoc> are exc"an$ed for a arcel of land. No money is involved. An exc "an$e not solely in >ind is one on e 2"ere t"e ro erties exc"an$ed includes money. 0or exa mle, s" ares of stoc> lus money are exc"an$ed for a arcel of land.
No $ain or loss s"all e reco$ni4ed if in ursuance of a lan of mer$er or consolidation* consolidation* 1) A coror cororati ation on 2"ic" 2"ic" is a arty arty to a mer$er mer$er or conso consolid lidati ation on exc"an exc"an$es $es roer roerty ty solely solely for stoc> in a cororation 2"ic" is a arty to t"e mer$er or consolidation* consolidation* or +) A s"ar s"are" e"ol olde derr exc" exc"an an$e $ess stoc stoc>> in a cor coror orat atio ionn 2"ic 2"ic"" is a art artyy to t"e t"e mer$ mer$er er or consolidation consolidation solely for t"e stoc> of anot"er cororation, also a arty to t"e mer$er or consolidation* ) A security "older of a cororation 2"ic" is a arty to t"e mer$er or consolidation consolidation exc"an$es "is securities in suc" cororation solely for stoc> or securities in anot"er cororation, a arty to t"e mer$er or consolidation* or 8) No $ain or loss s"all also e reco$ni4ed if roerty is transferred to a cororation y a erson in exc"an$e for stoc> or unit of articiation in suc" a cororation of 2"ic" as a result of suc" exc"an$e said erson, alone or to$et"er 2it" ot"ers, not exceedin$ four (8) ersons $ain control of said cororation; rovided, /"at, stoc>s issued for services s"all s"all not e considered as issued in return for roerty.B 6NIRC of 1997, !ec. 8 (C) N/! AN3 CDDN/!; !toc> issued for services are >no2n as Bdis$uised dividendsB. /"ey are not dividends in t"e true sense of t"e 2ord ecause t"ey do not reresent return on investments. /"is is t"e reason for t"e roviso clause /"at, stoc>s issued for services s"all not e considered as issued in return for roerty.B 6NIRC of 1997, !ec. 8 (C)
56 A sin$le rorietor transfers all "is interest in t"e usiness includin$ includin$ its $ood2ill at t"eir fair mar>et value to a cororation 2"ic" s"all e or$ani4ed in exc"an$e for t"e s"ares of stoc> of e5uivalent value of t"e latter. /"ere 2ould e a tax#free exc"an$e if it 2ill result to t"e rorietor o2nin$ entirely t"e caital caital stoc> of t"e cororation, cororation, excet excet er"as er"as t"e 5ualifyi 5ualifyin$ n$ s"ares s"ares of t"e ot"er incororators incororators.. RA!N; RA!N; /"e exc"an$e 2ill not $ive rise to any $ain for uroses of income tax. (:IR Rulin$ 0eruary +9, 19=) N/! AN3 CDDN/!; A recondition for t"e tax#free exc"an$e is t"at it s"ould result to cororate control. /"e aut"or sumits t"at If t"ere 2as already cororate control rior to t"e exc"an$e, t"en t"e tax#free exc"an$e does not aly.
It is correct to state t"at no taxale $ain or loss is reco$ni4ed under certain circumstances circumstances 2"ere t"ere is an exc"an$e solely in >ind. 'o2ever, t"e exemtion exemtion refers only to t"e initial exc"an$e. exc"an$e. &"ere t"e arties to t"e exc"an$e disose of t"e roerty t"ey received as a result of t"e exc"an$e, exc"an$e, t"en a $ain or loss 2ould e reco$ni4ed. reco$ni4ed. /"us, t"ere is merely a deferral of t"e income tax.
i. International carrier ii. ffs"ore an>in$ units iii. :ranc" rofits remittances iv) Re$ional Re$ional or area area "ead5 "ead5uart uarters ers and re$iona re$ionall oera oeratin$ tin$ multinational comanies
"ead5ua "ead5uarte rters rs of
57
i. ii) (iii)
Non# Non#re resi side dent nt cine cinema mato to$r $ra a"i "icc fil film# m#o2 o2ne nerr, les lesso sorr or or dis distr tri iut utor or Non#resident o2ner or lessor of vessels c"artered y "iliine nationals Non#resident o2ner or lessor of aircraft mac"ineries and ot"er e5uiment
/"is ractice 2"ic" is also >no2n as taxation at sourceB, refers to t"e re5uirement t"at taxes imosed or rescried y t"e NIRC are to e deducted and 2it""eld y t"e ayor#cororations andor ersons from ayments made to ayees#cororations ayees#cororations andor ersons for t"e former to ay t"e same directly to t"e :IR. /"us, t"e taxes are collected ractically at t"e time t"e transaction is made or 2"en t"e taxale act occurs. . 1) /o rovide t"e taxayer a convenient manner to meet "is roale income tax liaility. +) /o ensur ensuree t"e colle collect ctio ionn of t"e t"e inco income me tax 2"ic 2"ic"" could could ot"er ot"er2i 2ise se e lost lost or sus susta tant ntia iallllyy reduced t"rou$" failure to file t"e corresondin$ returns. ) /o im imro rove ve t"e t"e $ov $over ernm nmen entHtHss cas cas"" flo flo2 2. (Citian>, N.A. v. Court of Aeals, et al .,., G.R. No. 1788, ctoer 1, 1997)
8)
/o minim minimi4 i4ee tax eva evasio sion, n, t"us t"us resul resultin tin$$ in a more more effi efficie cient nt tax tax collec collectio tionn system system
Any erson re5uired to 2it""old, account for, and remit any tax imosed y t"e NIRC of 1997, or 2"o 2illfully fails to 2it""old suc" tax, or account for and remit suc" tax, or aids or aets in any manner to evade any suc" tax, or t"e ayment t"ereof, 1) s"all in addition to t"e criminal enalties of fine and imrisonment rovided for under !ec. + of t"e NIRC of 1997, +) e liale uon conviction conviction to a enalty enalty e5ual to t"e total amount of t"e t"e tax tax not 2it""eld, 2it""eld, or not accounted for and remitted. (NIRC of 1997, !ec. +1) 1) Crimi Criminal nal enalt enalties ies of fine fine and imri imrison sonme ment nt under under !ec. !ec. + of t"e NIRC NIRC of 1997. 1997. +) A enalty enalty e5ual to t"e total amount amount of refunds refunds 2"ic" 2"ic" 2as not returned returned to t"e emloyee emloyee resultin$ from any excess of t"e amount 2it""eld over t"e tax actually due on t"eir return. (NIRC of 1997, !ec. ++)
Any erson re5uired under t"is Code Code or y rules and re$ulations romul$ated t"ereunder to 2it""old or remit taxes 2it""eld, or refund excess taxes 2it""eld on comensation, at t"e time or times re5uired y la2 or rules and re$ulations s"all, in addition to ot"er enalties rovided y la2, uon conviction t"ereof, e unis"ed y a fine of not less t"an /en /en t"ousand esos (1,.) and suffer imrisonment of not less t"an one (1) year ut ore more t"an ten (1) years. (NIRC of 1997, !ec. +, ara"rasin$ sulied)
58 /"e 2it""oldin$ a$ent is exlicitly made ersonally liale under t"e NIRC of 1997 for t"e ayment of t"e tax re5uired to e 2it""eld. RA!N; /"e la2 sets no condition for t"e ersonal liaility of t"e 2it""oldin$ a$ent to attac". /"is is in order to comel t"e 2it""oldin$ a$ent to 2it""old t"e tax under any and all circumstances. In effect, t"e resonsiility for t"e collection of t"e tax as 2ell as t"e ayment t"ereof is concentrated uon t"e erson over 2"om t"e Government "as -urisdiction. /"us, t"e 2it""oldin$ a$ent is t"e constituted constituted a$ent ot" of t"e $overnment and t"e taxayer. taxayer. &it" resect to t"e collection collection andor 2it""oldin$ 2it""oldin$ of t"e tax, "e is is t"e GovernmentHs GovernmentHs a$ent. In re$ard to t"e filin$ filin$ of t"e necessary necessary income tax return and t"e ayment to t"e Government, "e is t"e a$ent of t"e taxayer. /"e 2it""oldin$ a$ent, t"erefore, is no ordinary $overnment a$ent esecially ecause under t"e /ax Code "e is ersonally liale for t"e tax "e is duty ound to 2it""old* 2"ereas, t"e Commissioner of Internal Revenue and "is deuties are not made liale under t"e la2. (0iliinas !ynt"etic 0ier Cororation v. Court of Aeals, et al., G.R. Nos. 11F89F X 1+877, ctoer 1+, 1999) If t"e 2it""oldin$ a$ent is t"e Government or any of its a$encies, olitical sudivisions or instrumentalities, or a $overnment#o2ned or controlled cororation, t"e emloyee t"ereof resonsile for t"e 2it""oldin$ and remittance of t"e tax s"all e ersonally liale for t"e deficiency taxes. 6NIRC of 1997, !ec. +87 () Any cororation, association or $eneral co#artners"i liale for any of t"e acts or omissions enali4ed under t"is Code, in addition to t"e enalties imosed "erein uon t"e resonsile cororate officers, artners, or emloyees s"all, s"all, uon conviction for eac" act or omission, omission, e unis"ed y a fine of not less t"an 0ifty t"ousand esos (,) ut not more t"an ne "undred t"ousand esos (1,). (NIRC of 1997, !ec. +=)
%nder t"e final 2it""oldin$ tax system t"e amount of income tax 2it""eld y t"e 2it""oldin$ a$ent is constituted as a full and final ayment of t"e income due from t"e ayee on t"e said income. income. /"e liaility for ayment ayment of t"e tax rests rimarily on t"e ayor as t"e 2it""oldin$ a$ent. /"us, in case of "is failure to 2it""old t"e tax or in case of under 2it""oldin$, 2it""oldin$, t"e deficiency tax s"all e collected collected from t"e ayor2it""oldin$ ayor2it""oldin$ a$ent. /"e ayee is not re5uired to file an income tax return for t"e articular income. 6RR No. +#9F, !ec. +.7 (A), 1st ar. 1) /"e !ecr !ecreta etary ry of 0ina 0inance nce uon uon t"e reco recomm mmend endati ation on of of t"e Commi Commissi ssione onerr of Inter Internal nal Revenue, +) may re5uire t"e 2it""oldin$ of a tax on t"e items of income ayale to natural or -uridical ersons, ersons, residin$ in in t"e "iliines, "iliines, ) y ayor#cororationsersons ayor#cororationsersons as rovided y la2, 8) at t"e rate of not less t"an one ercent (1P) ut not more t"an t"irty#t2o ercent (+P) t"ereof, ) 2"ic" s"all e credited a$ainst t"e income tax liaility of t"e taxayer for t"e taxale year . 6NIRC of 1997, !ec. 7 (:) N/! AN3 CDDN/!; CDDN/!; A 2it""oldin$ 2it""oldin$ tax certificate is rovided y t"e ayor#cororation ayor#cororationerson erson to t"e reciient of t"e income. /"is s"ould e attac"ed to t"e income tax return. /"e amount 2it""eld s"all e allo2ed as a reduction of t"e income tax liaility of t"e reciient of t"e income.
/"e Government or any of its olitical sudivisions, instrumentalities or a$encies, includin$ $overnment#o2ned $overnment#o2ned or #controlled cororations (GCCs) s"all, efore ma>in$ ayment on account of eac" urc"ase of $oods from sellers and services rendered y contractors 2"ic" are su-ect to t"e value# added tax imosed in t"is Code, deduct and 2it""old t"e t"e value#added value#added tax due. 6NIRC, !ec. 118 (C)
/"e $overnment official officialsem semloy loyees ees s"ould s"ould ensure ensure t"at t"e Annual Annual Informati Information on Return Return of Income Income /axes /axes &it""eld &it""eld on
59 Comensation and 0inal &it""oldin$ /axes (:IR 0orm No. 1=8#C0) and t"e re5uired Al"aetical ists of mloyeesayees and Annual Information Return of Creditale Income /axes &it""eld (xanded)Income ayments xemt from &it""oldin$ /ax (:IR 0orm No. 1=8#) and t"e re5uired Al"aetical ist of ayees are filed 2it" t"eir resective R3s on or efore
Refer to creditale 2it""oldin$ tax at source, sura. xcet in t"e case of a minimum 2a$e earner every emloyer ma>in$ ayment of 2a$es s"all deduct and 2it""old uon suc" 2a$es a tax determined in accordance 2it" t"e rules and re$ulations to e rescried y t"e !ecretary of 0inance, uon recommendation recommendation of t"e Commissioner. 6NIRC of 1997, !ec. 79 (A), as amended y R. A. No. 98, ara"rasin$ sulied /"e emloyer s"all e liale for t"e 2it""oldin$ and remittance of t"e correct amount of tax re5uired to e deducted and 2it""eld. 6Iid., !ec. F (A), 1st sentence /"e oli$ation of t"e ayor to deduct and 2it""old t"e tax arises at t"e time an income ayment is aid or ayale, or t"e income ayment is accrued or recorded as an exense or asset, 2"ic"eve 2"ic"everr is alicale alicale in t"e ayorHs ayorHs oo>s, 2"ic"eve 2"ic"everr comes comes first. /"e term JayaleH JayaleH refers to t"e date t"e oli$ation ecomes due, demandale and le$ally enforceale. rovided rovided,, "o2eve "o2ever, r, t"at 2"ere 2"ere incom incomee is is not not yet yet aid aid or ayale ayale ut t"e same "as een recorded recorded as an exense or asset, 2"ic"ever is alicale, in t"e ayorHs oo>s, t"e oli$ation to 2it""old s"all arise in t"e last mont" of t"e return eriod in 2"ic" t"e same is claimed as an exense or amorti4ed for tax uroses . :RR N". 2-7> 3e$. 2.G.4 ) )#en(e( %' RR N". 12-2001 5)r)5hr)ing u55+ie(; u55+ie(;
GOOD LUCK /ARNIN Auth"rie( $"5ie )re nu#%ere( )n( #)nu)++' igne( %' Pr"!. D"#"n("n "r hi )uth"rie( re5reent)ti*e. Do no l"nd $*& #ndou fo! !"%!oduc*on. P"e"r )n( uer "! un)uth"rie( $"5ie ) /e++ ) th"e /h" h)++ +en( their $"5ie !"r un)uth"rie( re5r"(u$ti"n h)++ n"t "n+' %e u%
D"#"n("n CT AND PA3TE i (itri%ute( !ree "! $h)rge %ut '"u h)*e t" rei#%ure hi# !"r the $"t "! re5r"(u$ti"n. F"r )uth"rie( $"5ie 5+e)e $"nt)$t B)%' Te+. N". >1G->4-47 "r >1&-0G-&>.
