CPALE (Luz Anne Monique N. Dispo, CPA May 2024)

Definition of capital:

Fund of a property existing at an instant of time

Wealth

Definition of income:

All wealth flowing into the taxpayer OTHER THAN a mere return of capital.

Flow of services rendered by the capital

Service of wealth

Requisites of taxable income

1. Gain; Return ON Capital

XPN: Return OF Capital

Advances or debts

Capital Contribution

Proceeds of health, accident, life
insurance (person as beneficiary)

Capital w/infinite value i.e. Life,
health&wellness, emotions, reputations

2. Income realized or received

When considered realized or received/

a. Earning process is complete or virtually complete

b. An exchange has taken place

All-events Test - when to recognize
income and expenses

a. Fixing of a right to income or liability to pay

b. Measurable

3. NOT excluded or exempted

Sources

Constitution

Tax Code

Other Special Laws

Treaties and Int'l Agreements

Revenue regulations

Inclusions

1. Rental Income

Regular IT

a. Monthly rent

b. Obligation of lessor ASSUMED by the lessee

c. Advanced Rent

d. Leasehold improvements going to the LESSOR (attached in the property)

Outright/Lump Sum Method

100% FMV recognized as income

Spread-out/Annual Method

Annual Income = BV, end of lease
-------------------
Remaining term

e. Security Deposit (Applied to the last month)

Final IT

a. Rent income by NRFC

Exempt

a. Security Deposit (Refunded)

b. Obligation of lessor NOT ASSUMED by the lessee

c. Leasehold improvements going to the LESSEE

2. Insurance Proceeds

Regular IT

Included regardless of designation (revo or not)

a. Interest on insurance proceeds

b. Annuities in excess of premiums

c. Proceeds of crop insurance (recovery of loss just in case)

Final IT

a. Insurance proceeds deposited in a bank

Exempt

a. Life insurance proceeds

If there is assignment of insurance = TAXABLE

b. Return of premiums (Return OF capital)

c. Health and accident insurance

d. Property insurance (over insurance NOT allowed)

3. Prizes

Regular IT

a. Prizes, <=10,000 (indivs)

b. Prizes, regardless of amount (corporation)

c. Foreign prizes (RC, DC)

Final IT

a. Prizes, >10,000 (20%)

b. Prizes, NRANETB, NRFC (25%)

Exempt

a. Prizes in connection to CLEARS achievements

b. Prizes of athletes

4. Winnings

Regular IT

a. Winnings, corps

b. Foreign winnings (RC, DC)

Final IT

a. Winnings, indivs (20%)

b. PCSO, >10,000 (20%)

c. PCSO, NRANETB (25%)

Exempt

a. PCSO, <10,000

5. Dividends

Regular IT

a. Dividends from FC

b. Share in NI of GPPs

c. Share in NI of exempt JV

d. Share in NI of co-ownerships

Final IT

a. Dividends from DC

b. Share in NI of commercial PPs

c. Share in NI of taxable JV

d. Share in NI of co-ownerships, not willingly dissolve lapsing 10yrs

Exempt

a. Intercorporate dividends

DC to DC

DC to RFC

b. Dividends from FC to DC (SHORE)

6. Interest

Regular IT

a. Long-term deposits of DC and RFC

b. Foreign interest (RC, DC)

c. Interest on insurance proceeds

d. Interest, in general

Final IT

a. Currency bank deposits

b. Yield from deposit substitutes

c. Government securities

d. Interest from EFCDS of residents

Exempt

a. Long-term deposits of individuals

b. Interest from EFCDS of non-residents

c. Interest on Comprehensive Agrarian Reform Program

7. Royalties

Regular IT

a. Foreign royalties (RC, DC)

Final IT

a. Royalties, in general (20%)

b. Royalties - LBM (10%)

8. Tax Refunds

Regular IT

a. DST

b. Excise

c. FBT

d. Foreign IT Credit claimed
as allowable deduction

e. OPT

f. Local Taxes

Exempt (INVADES)

a. Income Tax, PH

b. Foreign income tax claimed
as IT credit

c. Donor's

d. Estate

e. VAT

f. STT

9. Debts

9.1. Forgiveness of debt

Regular

Debtor rendered service (compensation income)

Final

Forgiveness of Sh debt by corporation (dividend income)

Exempt

No services rendered

9.2. Bad debt recovery

Regular

Writeoff reduced taxable income

Exempt

Writeoff did not reduce taxable income

10. Damage Recovery

Regular

Actual damages
- Recovery of profits
- Loss of earning capacity

Exempt

Actual damages
- Loss of capital
- Property damage

Moral damages

Exemplary damages

Nominal damages

Temperate damages

Others

11. Hidden treasure

Regular

1/2 of the treasure shall be allowed to the finder

XPN: If the finder is trespasser, not entitled of the share

12. Gambling

Regular

A loser may recover his loss from the winner

Subj to tax pa rin

13. James Doctrine (thief)

Taxable income on the part of the robber/thief thru assessment

14. Illegal Income

Regular

Final IT

a. Informer's reward

b. NRANETB

c. NRFC

d. POGO Employee

Exclusions

1. Diplomats

2. Income of Foreign Governments

3. Gift received by the donee

4. Bequests and devises received in succession

5. Income exempt by treaty of international agreements

Introduction

Taxation

inherent power of the state to collect enforced, propprtional, monetary contributions levied by the lawmaking body in order to raise revenues for public purpose

Similarities of the Inherent Powers

1. Restriction on rights

2. Equivalent compensation

3. Legislative in nature

Congress

4. Inherent

5. Crucial and indespensable

Enforced

Mandatory

Non-compliance is dealt with civil and criminal penalties

Non-payment of taxes:

1. Tax Evasion

ILLEGAL - when a person is legally compelled to pay taxes but refuses to do so

2. Tax avoidance

LEGAL means of non-payment of taxes

e.g. transfer a property thru tax-free exchanges

donations to accredited NGOs

3. Tax exemption

Batas na mismo nagsasabi

e.g. Min wag earner, did not exceed 250k, labor organization that is NPO, income tax holiday

Compensation:

NOT subj to offset

Proportional

1. Fiscal adequacy

sources of revenues must be adequate to meet govt expenditures

Collection > Expenses

2. Admin feasibility

Tax system should be capable of being effectively administered and enforced with the least convenience to the taxpayers

3. Theoretical justice

Rule of taxation shall be uniform and equitable

Must be based on the person's ability to pau

Monetary

Payable in money

Congress can enact that taxes can be paid other than money

But the valuation is not clear as to its sufficiency

Hence, not ideable

Levied by the lawmaking body

Branches of the Gov't

Legislative

Two houses (Enacting laws):

House of Representatives

Composed of 316 reps

Senate

Composed of 24 senadors

General Legislation Process

Proposals
and
Suggestions

Actions on bill

1. HOR

House bill

Three Readings

First: Reading the title and referral to appropriate committees (Blue ribbon)

Second: Sponsorship, period of debate, period of amendments

Third: Distribution of Bill in final form

Approved or disapproved?

Then mapupunta na sa senate and repeat the readings (6x)

2. Senate

Senate bill

Three Readings also after the HOR, vice-versa

3. Bicameral conference committee

Reconcile the house and senate version

4. President

Enrolled bill

Approve ENTIRE LAW

Veto ENTIRE LAW

Return to the originating house

Can be override

by 2/3 vote of both houses

If NO action on bill within 30 days

IMPLIED APROVAL

5, The act shall take effect 15 days, to be published in the publications

NOTE:

Qourom: Majority of the PRESENT

Tax Legislation

Shall originate exclusively in the House FIRST before the Senate

What if binago ng senate nung pinasa sa kanila?

No problem as long as it originated first in the House

Bicam can also introduce provisions

The President shall have the power to veto

ANY particular items, not necessary the entire law

In order to have tax exemption

Majority of ALL members of the Congress

Every bill passed by the congress shall embrace only one subject

Anti-rider provision

Applicable to law in general

Executive

National Dept

Led by the President

DOF

Secretary: Ralph G. Recto

Former: Benjamin Diokno

BOC

BIR

Org Chart

Head: Commissioner of Internal Revenue

Romeo Lumagui Jr.

Deputy Commissioners

Operations

Regional offices headed by the Regional Director

Revenue Distriict Offices - Revenue District Officer

Legal

Resources Mngt

Information systems

Functions

assessment and collection

enforcement of penalties/fines

execution of judgments

Powers: Delegable

Interpret tax laws

1. Quasi-legislative

exclusive and orig jurisdiction of CIR, for review of SOF

SOF upon reco of CIR promulgates all needful rules and regulations

Issuances by the BIR:

Revenue Regulation

specify, define, prescribe

Revenue Memorandum Order

addressed internally

instructions (utos), policies, objectives

Revenue Memorandum Circular

reiterations only

inform only about sa bagong batas

existing law already

BIR Rulings

questions and answers

any modification shall not be given retroactive application if it will be prejudicial to the taxpayers

TOUCHMOVE NA SA RULING KASI NAGTIWALA NA YONG TAXPAYER!

XPN - can be retroactive:

TP deliberately misstates

Facts gathered are materially diff from the facts on the ruling

TP acted in bad faith

NOTE: Unique rulings for each transaction, applicability is to each its own

2. Quasi-judicial

power to decide disputed assessments

Power:

1. Examination of return

Best evidence obtainable

examine any books

obtain information from any person

BIR can even obtain sensitive informations from private entities

Bir can also issue summon

to appear before the CIR

to produce such books

to give testimony

Even with the secrecy of bank deposits law in cases like:

Decedent in determining gross estate

Taxpayer who filed an application for compromise by reason of financial incapacity

supply of tax info from a foreign tax authority

Requirements:
- Identity
- statement that the request is in conformity with municipal law
- exhaustion of all local means

Procedures:

Notify receipt/deficiencies within 60 days

Provide information within 90 days within receipt or explain today

Use of estimates is founded on necessity

2. Amendment of Returns

Returns cannot be withdrawn

XPN : But may be amended within 3 yrs from filing

XPN to XPN: there is notice for audit or investigation or actually served

NOTE: CIR shall make or amend returns when:

fails to file a required return

willfully or otherwise files a false/fraudulent return

Other authorities:

Conduct inventory taking and surveillance

Terminate taxable period

can change the calendar talaga

In cases of: RICA

retiring from business

intending to leave PH

concealing his property

tending to perform an act obstructing the proceedings of collections of tax

Prescribe real property values

zonal values

adjusted every 3 yrs

published in newspaper

Accredit and register tax agents

pwede pumirmi in lieu of taxpayers

Denial of application may be appealed to SOP

Lapse of 120 days, deemed approval

Prescribe additional docu requirements

Powers: Non-delegable (RICA)

Recommend promulgation of rules by the SOF

Issue rulings of first impression

Compromise or abate any tax liability

XPN: 500,000 or less, can be done by the regional director na

Assign or reassign internal reve officers where articles subject to excise tax are kept

Duty:

Execute the law that the congress enacted

Local Dept

taxes imposed and collected by the LGUs

Funda principles

Uniform

Equitable

Only for public purposes

Should not be unjust

Not contrary to law and others

The collection shall in NO case be let to any private person

shall inure to the benefit of and be subj to the disposition by the LGU

downward lang itu

progressive system

Characteristics

NOT inherent on LGUs

it is DELEGATED

each LGU have the power to create their own sources of revenues

local autonomy

subj to guidelines and limitations as the Congress may provide

collections shall accrue exclusively to the local gov't

Congress CANNOT remove LGU's power to tax, they can only impose limit

Because it is contitutionalized

Paradigm shift in local gov't - Local legislative bodies are now given direct authority to levy taxes

LGUs impose ordinances not republic act

municipal ordinances are inferior in status and subordinate to the laws of the state

Hierarchy of Laws:

1. Constitution

2. Treaties

3. Law

4. Ordinances

Local tax Legislatiom

Who exercises the power of local tax?

Sanggunian

Panlalawigan

Vice gov

Panlungsod

Vice mayor

Bayan

Vice mayor

Barangay

Punong barangay

Ordinances Procedures

Meeting of all sanggunian

Necessity of a quorom

Submission for approval by the local chief executive

The chief executive's veto and overriding the same by 2/3 vote

For tax ordinances specifically:

Public hearing before any tax ordinance is enacted

Within 10 days after approval, publication for 3 consecutive days in newspaper

OR post in at least two publicly accessible places

When effective:

At the beginning of the next ensuing quarter

LGU may grant tax exemption

Local Tax Rates Adjustment

Not oftener other than once every 5 years

shall not exceed 10% of the rates

Residual taxing power

Can levy the power to tax of those not taxed by:
- Local Gov't Code
- NIRC
- Other applicable laws

Principle of Pre-emption:

If it is already taxed by the nat'l gov't, it cannot be taxed by the local gov't anymore

Common limitations to the
taxing powers of LGUs

a. Income tax

XPN: Banks and other financial institutions

b. DST

c. Estate tax

d. Donor's tax

XPN: Tax on donations of real property

e. Customs duties, reg of fees of
vessel, wharfage on wharves, tonnage duties

XPN: wharfage on wharves
maintained by the LGU

f. Taxes on goods passing through the terristorial jurisdiction

g. Marginal farmers/fishermen

h. BOI registered enterprises

i. Brgy business enterprise/Coop

j. OPT or VAT

XPN: as provided in the LGC

k. Ph products actually exported

XPN: as provided in the LGC

l. Excise taxes

m. Transportation contractors/common carriers

n. Registration of motor vehicles/issuances of all kinds of licenses

XPN: Tricycles

o. Taxes on the Nat'l Gov't

Taxing Powers of Provinces

Tax on transfer of real property ownership

Tax on business of printing and publication

Franchise tax

Base: Gross annual receipts of businesses enjoying a franchise

Rate: Not exceeding 50% of 1%

Means "secondary franchise" not franchise as a corpo

Tax on sand, gravel, rock, and other quarry resources

Amusement tax

Rate: Not more than 10% of gross receipts from admission fees

Note:

Those subject to amusement tax(OPT) under NIRC are exempt from AT under LGC

EXCLUDED:

Golf course

Resorts, swimming pools, hot springs, bath houses

Annual fixed tax for every delivery truck

Professional tax

Profession requires gov't licensure examination

Exempt: Employed in the gov't

Date: January 31 or before beginning the practice of the profession

Place: Province where he practices profession or the location of principal office

Reason: The number of the OR issued shall be indicated in his work e.g. reports

PTR No.

If you have multiple professions, pay multiple tax

Not to exceed P300

Annual ad valorem on real property

Special levies on real property

Toll fees

Reasonables fees for services rendered

For operation of public utilities

Slaughter fees, corral fees

Tuition fees from provincial high school

Taxing Powers of Municipalities

Tax on business

Manufacturers

Wholesalers

Exporters

Retailers

Contractors

Banks and other fin inst

Peddlers

Others

Fees and charges on business and occupation

Fees for sealing and licensing of weight measures

Fishery rentals, fees and charges

Situs rules: Hatian sa sales

Location of branch/sales outlet where sale is made

Principal office - 100%

Branch - 100%

If there is factory/plantation
in the same place:

Principal office:

Home office - 30%

Factory/Plantation - 70%

Branch - 100%

If factory and plantation are
in the different place

Principal office:

Home office - 30%

Factory/Plantation - 70%

Factory - 60%

Plant - 40%

Branch - 100%

Taxing Powers of Cities

Scope:

May levy the taxes imposed by the province or municipality

Inurement:

Types of cities:

Component cities

bahagi ng probinsya pa rin hence may share pa rin doon

Ind Component cities

Highly urbanized cities

Taxing Powers of Barangays

Barangay taxes

Service fees or charges

for use of brgy-owned properties

Barangay Clearance

Other fees and charges

Cockfights and cockpits

Billboards and neon signs

Recreation places

Community Tax

Persons liable

Individuals

Every inhabitant of PH 18+ yrs of age

- regularly employed for atleast 30 conse days

- engaged in business or occupation

- owns real property, AV of >=1,000

- required to file ITR

Amount:

a. Basic

5.00

b. Additional:

1.00/1,000 income

In no case shall exceed 5,000

If couple:

Additional tax shall be based on the total property, gorss receipts or earnings derived by them

Corporation

XPN: NRFC

Amount:

a. Basic

500

b. Additional

2.00/5,000

Assessed value of RP in PH
owned during the preceding yr

2.00/5,000

Gross receipts or earnings derived
from its business in PH during the preceding yr

Shall NOT exceed 10,000

XPN:

Diplomatic reps

Transient who does not exceed 3 mons stay

Imposing authority

Cities or municipalities

Date: Accrued on Jan 1 of each yr

shall be paid not later than the last day of Feb

Place: Residence of the indiv/Location of principal office

May still be issued to any person NOT subj to com tax upon payment of 1.00

Collector:

City/muni trea

100% will accrue to them

Brgy trea

50% city, 50% brgy

CTC:

Printed by the BIR

Portion should be paid to natl govt to cover cost of printing

Real Property Tax

direct tax on ownership of lands, bldgs, or other improvements

payable regardless of whether property is used or not

Nature:

Direct tax

Ad Valorem

Local Tax

Property Tax

Who collects?

Provinces

Cities

Municipalties in NCR

Funda principles

Appraised at its current and FMV

Doctrine of usage: actual use

Uniform classification

Not collected by private person

Equitable

Kinds

Basic RPT

Levy on RP for the special education fund

Rate: 1% of the assessed value for prov and cities

Accrue to the SEF

Tax on idle lands

Penalty tax

Rate: Not exceeding 5% of the assessed value

Agricultural

1 hectare, 10K sqm

1/2 unutilized/unimproved

XPN: For grazing, with 50 permaent or prennial crops

Non-agri

>1,000 sqm

1/2 unutilized/unimproved

XPN:

Force majeure

Civil disturbance

Natural calamity

Any cause preventing the owner to use the land

Special levy on public works

Other term - special assessments

May project and LGU and makikinabang ang lupa mo

should notify owners

Annual installments: Between 5-10 yrs

Limit: 60% of actual cost of projects

Taxes paid not deductible

Exempted RPT:

RP owned by the Republic of the PH

XPN: beneficial use has been granted to a taxable person, hence sila ang magbabayad ng RPT

Charitable institutions

Churches, mosques, nonprofit religious cemeteries,
ADE for charitable, religious, educational purposes

All machineries and eqpt ADE used by local water dist and GOCCs

Owned by duly registeres cooperatives

Machinery and eqpt used for pollution control and environmental protection

What are the RPs?

Land, bldgs, roads attached to the soil

Trees, plants, and growing fruits attached to the tree and soil

Everything attached to an immovable without breaking the material

Statues, reliefs, painting or other objects which reveals intntion to attach them permanently to the tenements

Machinery to be used essentially in business

attached or not

Doctrine of essentiality

Animal houses attached to the land inc animals

Fertilizer na sinaboy na sa lupa

Mines, quarries, slag dumps

Docks and structures

Intangible real prop

Improvements

Appraisal and Assessment

1. Declaration real property

2. Listing of RP in the assessment rolls

3. Appraisal and valuation of RP

Assessment level:

Percentage applied to FMV to determins the taxable value of the property

4. Determination of assessed value and RPT

5. Payment and collection

More notes:

Rate of levy of basic RPT

Province <=1%

City <=2%

Municipality in NCR <=2%

Base: Assessed value

Classess of RP

Timberland

20

Residential

20

if bldg and FMV did not exceed 175K, NO RPT

Agricultural

40

Gold/Commercial

50

Industrial

50

Mineral

50

Special

Cultural

15

Scientific

15

Hospital

15

Local water districts

10

GOCC

10

Basis:

Actual use regardless if youre the owner or not

How often is the revision of RP assessments?

Every three (3) yrs

Assessment to take effect Jan 1 of succeeding year

Collection of RPT:

Date of accrual: Jan 1

it shall constitute a lien on the property superior to any lien, mauuna sa pila na babayaran

Person to collect:

City trea if city

Municipal trea if province

XPN: Brgy trea may be deputized

Deadline:

Notice of collection

January 31 for Basic RPT and SEF

Notice shall contain the deadlline

Interest

on unpaid RPT

2% per month

Not exceeding 36 months

Kinds of Tax

As to Impact and incidence

Direct tax

Falls on the same person

e.g. Estat, donor's, income tax

Indirect tax

Rests on different person

e.g. VAT

As to tax base

Specific tax

Volume, quantity, number

Ad Valorem

Value

As to purpose

Revenue/Fiscal tax

to raise revenue

Sumptuary/Regulatory tax

to regulate

As to object/subj matter

Personal/poll/capitation tax

Community tax

Property tax

RPT

Excise/Privilege tax

As to relation of tax rate to the tax base

Proportional

Fixed rates regardless of the base

Progressive tax

As the tax base increases, tax rate also increases

Regressive tax

opposite of progressive

As to imposing authority

National tax

Local tax

Judiciary

Nature of Taxing Power

Unlimited

Plenary

Comprehensive

Supreme

Inherent powers

a. Police power

promoting the public welfare by restraining and regulating the use of liberty and property

b. Eminent Domain

taking or private property for public use with payment of just compensation

c. Taxation

Why inherent?

Lifeblood doctrine - through which the govt agencies continue to operate. Taxes are essential to its very existence

Other term: Necessity Theory

Prompt and certain availability is an imperious need.

Without taxes, govt cannot fulfill its duties to the public

Manifestations

No injunction rule

Court CANNOT INTERFERE

No constitutional grant needed

Strict interpretation of tax refunds

Benefits-Received Theory

Founded in the principle of reciprocity

Nagpapakinabangan ang tao and gov't

Mutualism - both benefits in the relationship

Other term: Doctrine of Symbiotic Relationship

Inherent Limitation

Public purpose

They cannot be used for purely private purposes

Power to tax exists for the general welfare

Unlimited power of tax involves power to destroy

Primary/Fiscal purpose:

To raise revenues

Tax vs Fee

Fee

reward or compensation to an officer for services performed

sum certain given for a particular service

If generally to raise revenues = taxes

The revenue incidentally generated must not exceed the cost of regulation

Taxes

For primarily regulatory purpose = fee

Deductible as EXPENSE hence,
recovery and refund are TAXABLE

Pay to their respective muni

met one is enough

wala nang share si province sa kanila

NOT TAXABLE

RPs enumerated below

NON-DEDUCTIBLE and NON-TAXABLE

Tax on Real Property

Sales, donation, barter of transferring ownership of property

Date: 60 days from date of execution or date of death

Local transfer tax

Base: Consideration or FMV, whicher is higher

Rate: <=50% of 1%

Depende for each particular ordinances

But safe assumption is the maximum

Land only