for signing, or the President will not act on it and after 30 days
it will lapse into a law.)
So the NIRC, in so far as the Executive Department,
the implementation and enforcement of the law is in
the Department of Finance (DOF).
-
TAXATION 1
Based on the Lectures of Dean Quibod
suspicion. That is a routinary process done kasi nga selfassessing. How will the BIR know na tama iyong dineclare at
binayaran mo. So, since hindi alam ng gobyerno na tama iyon,
it goes to that assessment process. The government is given 3
years after the filing of the return, from the deadline, the
government is given 3 years to determine kung tama ba iyong
dineclare mo at tama ba iyong tax.
However, not all dadaan sa assessment, may mga suki lang
jan. Of course, if you are a wage earner you will not be subject
to that. The government will be spending so much for the
examination and then 1thousand lang pala ang babayaran mo
na tax. In other words, there is bench marking and selection
process, titingnan nila sino itong big tax payers. If you are a big
business or a large tax payer then they will have a basis for the
examination.
Your returns now will be investigated kung tama ba iyon. After
that they will send you now a notice of assessment, on the
basis na meron silang nakita na deficiency, pag-recompute
may kulang, a notice will now be sent. So kung gusto mong
ichallenge yung assessment deficiency, then the remedy of the
tax payer is to protest. The protest is lodged to the CIR (BIR)
on the basis of its Quasi-judicial powers. It will either be
granted or denied.
Also, under section 4 the tax payer may file for a tax refund. If
the tax payer discovers that he has overpaid or erroneously
paid the tax then magfifile siya ng claim for refund. The BIR will
either grant or deny, if denied, it will go to the CTA.
Now Section 5, the power of the Commissioner to Obtain
information, and to Summon/Examine, and to take Testimony.
Section 5. Power of the Commissioner to Obtain
information, and to Summon/Examine, and Take
Testimony of Persons. - In ascertaining the correctness of
any return, or in making a return when none has been made,
or in determining the liability of any person for any internal
revenue tax, or in collecting any such liability, or in evaluating
tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record, or other data which
may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
investigation, or from any office or officer of the national and
local
governments,
government
agencies
and
instrumentalities, including the Bangko Sentral ng Pilipinas and
government-owned or -controlled corporations, any information
such as, but not limited to, costs and volume of production,
receipts or sales and gross incomes of taxpayers, and the
names, addresses, and financial statements of corporations,
mutual fund companies, insurance companies, regional
operating headquarters of multinational companies, joint
accounts, associations, joint ventures of consortia and
registered partnerships, and their members;
(C) To summon the person liable for tax or required to file a
return, or any officer or employee of such person, or any
person having possession, custody, or care of the books of
accounts and other accounting records containing entries
relating to the business of the person liable for tax, or any other
person, to appear before the Commissioner or his duly
authorized representative at a time and place specified in the
summons and to produce such books, papers, records, or
other data, and to give testimony;
(D) To take such testimony of the person concerned, under
oath, as may be relevant or material to such inquiry; and
(E) To cause revenue officers and employees to make a
canvass from time to time of any revenue district or region and
inquire after and concerning all persons therein who may be
TAXATION 1
Based on the Lectures of Dean Quibod
liable to pay any internal revenue tax, and all persons owning
or having the care, management or possession of any object
with respect to which a tax is imposed.
The provisions of the foregoing paragraphs notwithstanding,
nothing in this Section shall be construed as granting the
Commissioner the authority to inquire into bank deposits other
than as provided for in Section 6(F) of this Code
Ito yung mangyayari during the 3year period. The BIR will ask
you to submit your receipts, books and records. They will
obtain 3rd party information, your suppliers and customers.
Baka meron palang undeclared income.
Then on the last paragraph, on the authority to inquire on your
bank accounts. In spite of all these vast powers and authority
of the Commissioner, hindi nito saklaw ang paginquire sa iyong
bank deposits. There is actually a proposal in Congress to
relax the Bank Secrecy Law because its provisions are very
strict.
There are only 2 grounds within which the BIR can inquire into
your bank accounts:
1. For Estate Tax purposes
2. When the tax payer files for compromise on tax
deficiency based on financial incapacity
After a finding of a deficiency, the tax payer
would now ask for a compromise. May finding na
10M ang deficiency and the tax payer will say na
I am willing to pay pero wala akong pera, may
pera ako sa bangko pero 500T nalang. So totoo
ba yan, papirmahin ka ng waiver to inquire now
into your bank accounts.
Outside of the 2 grounds, there is no way.
Then Section 6. Another Power of the Commissioner to Make
assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement. That is really a power in so
far as the tax administration aspect.
Under section 6(a). Examination of Returns and Determination
of Tax Due. After the return has been filed, che-check apin
kung tama ba yun by the Commissioner through the district
revenue officers.
Section 6. Power of the Commissioner to Make
assessments and Prescribe additional Requirements for
Tax Administration and Enforcement
(A)Examination of Returns and Determination of Tax Due.
- After a return has been filed as required under the provisions
of this Code, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer
and the assessment of the correct amount of tax: Provided,
however; That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any
taxpayer.
The tax or any deficiency so assessed shall be paid upon
notice and demand from the Commissioner of from his duly
authorized representative.
Any return, statement of declaration filed in any office
authorized to receive the same shall not be withdrawn:
Provided, That within three (3) years from the date of such
filing, the same may be modified, changed, or amended:
Provided, further, That no notice for audit or investigation of
such return, statement or declaration has in the meantime
been actually served upon the taxpayer.
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TAXATION 1
Based on the Lectures of Dean Quibod
Section 6(d), is the authority to terminate taxable period which
will take place when the tax payer will retire. Hindi ibig sabihin
na wala ka ng obligasyon when you retire. Babalikan ka pa rin
ng BIR, paano iyong transactions before that. When you retire,
the BIR will make an assessment, a tax period otherwise
babalikan ka. They will investigate you again to determine you
still have to pay deficiency tax. We also have those intending to
leave the country or removing property or hide or concealing
property tending to obstruct the collection of the tax.
We will just finish this part. When the assessment has already
become final, the next thing that will happen is collection.
Paano ba nila kokolektahin ang deficiency tax. They would run
after you real and personal properties, garnish your properties
to collect the deficiency. The assessment is 3 years, the BIR is
given 5 years to complete the collection.
(D) Authority to Terminate Taxable Period. - When it shall
come to the knowledge of the Commissioner that a taxpayer is
retiring from business subject to tax, or is intending to leave the
Philippines or to remove his property therefrom or to hide or
conceal his property, or is performing any act tending to
obstruct the proceedings for the collection of the tax for the
past or current quarter or year or to render the same totally or
partly ineffective unless such proceedings are begun
immediately, the Commissioner shall declare the tax period of
such taxpayer terminated at any time and shall send the
taxpayer a notice of such decision, together with a request for
the immediate payment of the tax for the period so declared
terminated and the tax for the preceding year or quarter, or
such portion thereof as may be unpaid, and said taxes shall be
due and payable immediately and shall be subject to all the
penalties hereafter prescribed, unless paid within the time fixed
in the demand made by the Commissioner.
Section 6(e). The authority to prescribe real property values.
For purposes of real property tax, it is your local assessor (city
or provincial) which determines the fair market value in a
particular territory or locality. The BIR also makes its own
valuation which we call as the zonal value. Usually the zonal
value of the BIR is higher than the fair market value of the
assessor. They are not necessarily bound to follow the
valuation of the assessor. So, in determining fair market value
therefore, there are 2 valuations. For purposes of the tax base,
the rule is whichever is higher between the BIR and the
assessor.
(E) Authority of the Commissioner to Prescribe Real
Property Values. - The Commissioner is hereby authorized to
divide the Philippines into different zones or areas and shall,
upon consultation with competent appraisers both from the
private and public sectors, determine the fair market value of
real properties located in each zone or area. For purposes of
computing any internal revenue tax, the value of the property
shall be, whichever is the higher of:
(1) the fair market value as determined by the Commissioner,
or
(2) the fair market value as shown in the schedule of values of
the Provincial and City Assessors.
Section 6(f). This is the authority to inquire into the bank
accounts, whether you have the peso or foreign currency.
Looking into the 2 instances, for the estate and on the basis to
compromise the tax liability based on financial capacity.
Now there is a third one which is introduced under RA 10021,
this is an inquiry by a foreign tax authority. A foreign tax
authority may inquire on the BIR for a tax information, and that
is allowed under this section 6f number 3. Ang haba2x ng
provision. (Please refer to your codal for the provision.)
3 Manresa 2016-2017
TAXATION 1
Based on the Lectures of Dean Quibod
SEC. 11. Duties of Revenue District Officers and Other Internal
Revenue Officers.
SEC. 12. Agents and Deputies for Collection of National
Internal Revenue Taxes. - The following are hereby
constituted agents of the Commissioner:
(a) The Commissioner of Customs and his subordinates with
respect to the collection of national internal revenue taxes on
imported goods;
(b) The head of the appropriate government office and his
subordinates with respect to the collection of energy tax; and
(c) Banks duly accredited by the Commissioner with respect to
receipt of payments internal revenue taxes authorized to be
made thru bank.
Any officer or employee of an authorized agent bank assigned
to receive internal revenue tax payments and transmit tax
returns or documents to the Bureau of Internal Revenue shall
be subject to the same sanctions and penalties prescribed in
Sections 269 and 270 of this Code.
For Section 12(a) We have here the BOC, in connection with
importation. When you import you dont only pay the duties,
you also pay an internal revenue tax (like VAT) on account of
importation on excise tax. Since the excise tax is due to the
BIR, it is the BOC who is in charge of collecting kasi doon
dadaan sa kanila. We dont place BIR personnel there but
under the law they are now deputized.
For Section 6(c). Payment of taxes may now be made online to
duly accredited banks.
SEC. 13. Authority of a Revenue Offices. - subject to the
rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner, a
Revenue Officer assigned to perform assessment functions in
any district may, pursuant to a Letter of Authority issued by the
Revenue Regional Director, examine taxpayers within the
jurisdiction of the district in order to collect the correct amount
of tax, or to recommend the assessment of any deficiency tax
due in the same manner that the said acts could have been
performed by the Revenue Regional Director himself.
Section 13. The Revenue officer could not make his
assessment functions without that Letter of Authority (LOA). No
revenue officer can go to the tax payer and say iimbestigahan
ka na namin that we are asking for your books of account etc.,
that could not be done if he is not armed with the letter of
authority. That LOA should also define kung anong year ka
iimbestigahan, kasi paano kung nagprescribe na pala.
SEC. 15. Authority of Internal Revenue Officers to Make
Arrests and Seizures. - The Commissioner, the Deputy
Commissioners, the Revenue Regional Directors, the Revenue
District Officers and other internal revenue officers shall have
authority to make arrests and seizures for the violation of any
penal law, rule or regulation administered by the Bureau of
Internal Revenue. Any person so arrested shall be forthwith
brought before a court, there to be dealt with according to law.
SEC. 16. Assignment of Internal Revenue Officers Involved
in Excise Tax Functions to Establishments Where Articles
subject to Excise Tax are Produced or Kept. - The
Commissioner shall employ, assign, or reassign internal
revenue officers involved in excise tax functions, as often as
the exigencies of the revenue service may require, to
establishments or places where articles subject to excise tax
are produced or kept: Provided, That an internal revenue
officer assigned to any such establishment shall in no case
3 Manresa 2016-2017
stay in his assignment for more than two (2) years, subject to
rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner.
Section 16. Here, revenue officers may be assigned to certain
establishments for 2 years lang. After that pwede ng palitan
because familiarity brings ------. Kung magtagal yan, di na yan
magbantay, magbeso2x na yan and magchikachika.
SEC. 17. Assignment of Internal Revenue Officers and
Other Employees to Other Duties. - The Commissioner may,
subject to the provisions of Section 16 and the laws on civil
service, as well as the rules and regulations to be prescribed
by the Secretary of Finance upon the recommendation of the
Commissioner, assign or reassign internal revenue officers and
employees of the Bureau of Internal Revenue, without change
in their official rank and salary, to other or special duties
connected with the enforcement or administration of the
revenue laws as the exigencies of the service may require:
Provided, That internal revenue officers assigned to perform
assessment or collection function shall not remain in the same
assignment for more than three (3) years; Provided, further,
That assignment of internal revenue officers and employees of
the Bureau to special duties shall not exceed one (1) year.
Section 17. Assignment of Internal Revenue Officers and
Other Employees to Other Duties. They could be assigned to
other duties but it shall not be more than 3 years. This became
a law because prior to this law during the time of
Commissioner Liwayway Santiago, she made reassignments.
Of course, yung mga racket nila matatamaan, so they
complained. Kung mag-assign ka 3 years lang.
SEC. 19. Contents of Commissioner's Annual Report. - The
Annual Report of the Commissioner shall contain detailed
statements of the collections of the Bureau with specifications
of the sources of revenue by type of tax, by manner of
payment, by revenue region and by industry group and its
disbursements by classes of expenditures.
In case the actual collection exceeds or falls short of target as
set in the annual national budget by fifteen percent (15%) or
more, the Commissioner shall explain the reason for such
excess or shortfall.
SEC. 20. Submission of Report and Pertinent Information
by the Commissioner
(A) Submission of Pertinent Information to Congress. - The
provision of Section 270 of this Code to the contrary
notwithstanding, the Commissioner shall, upon request of
Congress and in aid of legislation, furnish its appropriate
Committee pertinent information including but not limited to:
industry audits, collection performance data, status reports in
criminal actions initiated against persons and taxpayer's
returns: Provided, however, That any return or return
information which can be associated with, or otherwise identify,
directly or indirectly, a particular taxpayer shall be furnished the
appropriate Committee of Congress only when sitting in
Executive Session Unless such taxpayer otherwise consents in
writing to such disclosure.
(B) Report to Oversight Committee. - The Commissioner shall,
with reference to Section 204 of this Code, submit to the
Oversight Committee referred to in Section 290 hereof,
through the Chairmen of the Committee on Ways and Means
of the Senate and House of Representatives, a report on the
exercise of his powers pursuant to the said section, every six
(6) months of each calendar year.
TAXATION 1
Based on the Lectures of Dean Quibod
Section 19. and Section 20. These reports are submitted to
Congress by the commissioner, specially if the statutes have
loopholes on the basis of her reports. Any tax leakages or
loopholes will be brought to the oversight committee for its
corresponding legislation.
Section 21. Sources of Revenue. These taxes are selfassessing.
SEC. 21. Sources of Revenue. - The following taxes, fees
and charges are deemed to be national internal revenue taxes:
(a) Income tax;
(b) Estate and donor's taxes;
(c) Value-added tax;
(d) Other percentage taxes;
(e) Excise taxes;
(f) Documentary stamp taxes; and
(g) Such other taxes as are or hereafter may be imposed and
collected by the Bureau of Internal Revenue.
Next meeting we will go now to Income Tax.
LABOR,
EXERCISE
OF
August 9, 2016
By Yasmine Ibay
INTRODUCTION TO INCOME TAXATION
What is Income?
Income is the amount of money or property received by a
taxpayer (person or corporation) within a specified time
whether as payment for services, interest, or profits from
investments.
Supreme Courts Definition of Income - Income is the flow of
wealth into the hands of the taxpayer other than return of
capital.
*Note: This is a broader concept of income.
CONCEPT OF INCOME
Capital is the fund whereas, income is the wealth. However,
not all wealth which goes into the hands of the taxpayer will
become income. Part of that will be considered as capital.
As an illustration, we look into a borrower-lending relationship.
The lender lends money to the borrower for P10,000 with 12%
interest.
Principal:
10,000
Interest:
(10,000 *12%)
1,200
Total Payment due:
11,200 (10,000 is a return
of capital and 1,200 is the income)
Take note that a part of the 11,200 is capital and capital is not
considered as income. So 10,000 is the capital and the 1,200
is the income.
Wealth which goes into the hands of the taxpayer will be
income provided that it does not pertain to capital. If the wealth
that goes into the hands of the taxpayer includes income, then
you have to remove capital portion in order to determine the
income.
3 Manresa 2016-2017
ESSENTIAL
INCOME
1.
REQUISITES
FOR
THE
TAXABILITY OF
TAXATION 1
Based on the Lectures of Dean Quibod
appreciated in value. But in the event that you are
going to sell that property and you are going to derive
a gain upon that sale, then there will be an income.
So a transaction where there is no exchange of
values, it does not give rise to an income.
2.
Take note that the tax treatment view indifferently the tax base.
There is no distinction. It generally treats in common the
categories of taxable income. All income are mingled, we allow
deductions if applicable, then you have your taxable income
times the income tax rate.
The opposite is what we call as the Schedular. There is a
distinction or differentiation of the different classes/items of
income. Under the Schedular, there is a separate treatment for
compensation, separate treatment for professional/business
income, passive income, and capital gains. There is now a
distinction of the different types of income which the taxpayer
may earn.
Our current income tax system follows the schedular. We
categorize our income into 4 classes.
Four classes of categories of income:
TAXATION 1
Based on the Lectures of Dean Quibod
1.
2.
3.
4.
Compensation income
Business income / professional income
Passive income
Capital gains
In your readings you may encounter semi-schedular, semiglobal etc. but predominantly it is schedular. You would go over
the tax treatment over the different classes of taxpayers from
individuals to corporations. Youll notice the differentiation in
the manner of the treatment of these income. But they would
say that it is semi-global because there would be a common
treatment to all other income which are not subject to
special/preferential rates.
WITHHOLDING TAXES
When we shifted from the global to schedular, when there was
a distinction and differentiation of income, we introduced a tax
reform. We introduced the withholding of taxes.
Under the global approach, since it follows the principle that all
income are one and the same, a lot of income items have
escaped taxation. If you are a taxpayer who is purely
compensation income earner, normally the income that will be
taxed are those income arising from your labor. Now, if you
have a bank deposit having an amount of P10,000 and at the
end of the year it earned an interest of P100, normally you will
not anymore declare an interest income of P100 since it is
merely of minimal value. However, what if there are 100 million
people doing the same thing? Then that would be a big chunk
of revenue that would escape taxation. Nakaligtaan itax
because of the global approach of taxing income. There will be
a lot of income items which will not be reported. So we
addressed that by shifting to schedular approach. Then we
introduced the withholding of taxes.
The withholding of taxes follows the principle of pay-asyou-go. Under the principle of pay-as-you-go, a tax is already
collected at the source of the income. In the case of wages,
upon the receipt from the employer, the taxes due are already
deducted and withheld by the employer. The employer then
remits the same to the BIR.
Yung interest income niyo sa deposit, masking P100 lang yan,
kinaltasan na yan ng bangko for the withholding tax on interest
income which we also call as passive income.
Withholding Agents. Under this principle, the tax was already
charged against the taxpayer at the very source of the income.
So you have withholding agents. The employer, banks,
whoever has custody of the income before its remittance to the
recipient. That custodian or withholding agent is the one, under
the law, with the obligation to make the withholding. Upon
receipt of income by the recipient, the tax had already been
deducted.
Who are the withholding agents?
Compensation income: employer
If you are engaged in the business or practice of profession,
when you bill your clients for services rendered, upon receipt of
the check, the withholding tax had already been removed.
Illustration:
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TAXATION 1
Based on the Lectures of Dean Quibod
compensation income earners or engaged in business or
practice of profession have the same rates. From 5%-32%. We
have the commonality insofar as the rates of their taxable
income.
Rental income
FORMS OF INCOME
Money
Property
Service
of
the
Sale of merchandise
Interest income
place of sale
residence of the debtor
*Contract of loan having a
lender-borrower
relationship,
the source of income is the
residence of the debtor. Lender
is in the Philippines, borrower is
from Hongkong. Interest income
is earned in Hongkong.
SITUS OF TAXATION
1.
2.
3.
use
place of
intangibles
Dividend Income
residence/office
corporation
Dividends
are
profits
earned by a corporation
distributed
to
its
stockholders.
Mining
Farming
of
the
Source
place of performance of
service (not the place of
payment)
*Note: A talent receiving
compensation in this country
but the performance was made
abroad, the income shall be
considered as an income
earned outside the Philippines
(income without). Because that
is the place of performance of
the service.
3 Manresa 2016-2017
TAXATION 1
Based on the Lectures of Dean Quibod
1) Compensation. It pertain to compensation for
SECTION 31 TAXABLE INCOME DEFINED The term taxable income
income specified in this Code, less the deductions and/or personal and additional
exemptions,
services
in whatever form paid, including but not
such types of income by this Code or other special laws.
limited to fees, salaries, wages, commissions, and
similar others. For purposes of compensation income,
regardless of whatever form the services were paid, it
could still be taxable compensation income and they
Taxable income refers to the gross income subject to tax, less
the deductions, whether itemized or optional standard
form part of your taxable income.
deductions, and/or personal and additional exemptions, if any,
authorized for such type of income. This term refers to the tax
There are employers who will provide mere
base.
allowance, board and lodging, or representation. All
these will form part of the compensation income of the
For individuals who are employed, it is the income after
employee. There is the rule we call for the
deducting the exclusions and the exemptions.
convenience of the employer rule the board
For individuals engaged in trade or business or in the practice
and lodging and meal allowance are provided by
of their profession, it is the income after deducting exemptions.
the employer, because the employer has to have
For corporations and other juridical entities, taxable income
that person (e.g driver). He has to have the person
would mean the net income, also after deducting the itemized
available 24 hours because of the nature of the
deductions or the optimal standard deductions of 40%, at the
profession. The employer will provide housing and
option of the taxpayer.
meals.
Computation of taxable income must be computed with
respect to a fixed period. That period is twelve months ending
December 31st of every year, except in the case of a
corporation filing returns on a fiscal year basis, in which case
taxable income will be computed on the basis of such fiscal
year.
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10
TAXATION 1
Based on the Lectures of Dean Quibod
allowances will form part of his taxable
compensation income. Those allowances will be
subject to tax, including his salaries and wages.
2)
3)
4)
5)
6)
7)
8)
this pertains to
set up, and that
in the form of
the hands of the
9)
11
TAXATION 1
Based on the Lectures of Dean Quibod
the installment payment, naging P560k, then there is
income. The income is P60k, the difference of the
principal coverage/principal amount of the policy. The
interest feature of the installment payment is
recognized as a taxable income.
2)
3)
4)
(ii)
3 Manresa 2016-2017
6)
SECTION 32 (B)
6.) Retirement benefits received under Republic Act No. 7641 and th
private firms, whether individual or corporate, in accordance with a reaso
employer: Provided, That the retiring official or employee has been in th
ten (10) years and is not less than fifty (50) years of age at the time o
benefits granted under this subparagraph shall be availed of by an offic
this Subsection, the term 'reasonable private benefit plan' means a pen
plan maintained by an employer for the benefit of some or all of his offic
made by such employer for the officials or employees, or both, for the
employees the earnings and principal of the fund thus accumulated, and
time shall any part of the corpus or income of the fund be used for, or b
exclusive benefit of the said officials and employees.
RECIT!!
12
TAXATION 1
Based on the Lectures of Dean Quibod
How are these retirement benefits become excluded?
What is R.A. 7641?
How many retirement benefits are contemplated in that
provision?
There are two.
(1) Under R.A. 7641 (amending Art. 287 of the Labor Code);
(2) Those received by officials and employees of private
firms whether individual or corporate in accordance with a
REASONABLE PRIVATE BENEFIT PLAN maintained by the
employer.
The provision contemplates two types of retirements wherein
the law excludes from tax.
(1) When you retire under the Labor Code, the retirement
benefits have their own requirements. Hindi na inulit
dito as it made reference to R.A. 7641. Your
retirement pay will be excluded.
(2) When your employer sets up reasonable private
benefit plan. It pertains to pension, gratuity, stock
bonus, or profit-sharing plan etc. The employer
sets up its own, whether individual or corporate,
reasonable private benefit plan. Ibig sabihin, nagsetup sya ng sarili nyang retirement fund, pension fund,
etc. For purposes of the exclusion, these are the
requirements, so that those retiring under the
employers own benefit plan will be excluded.
REQUIREMENTS:
(a) It must be in accordance with a reasonable
private benefit plan. This reasonable private
benefit plan should be one approved and
accredited by the BIR. It could not just set up
private benefit plan without having this approved
by the BIR.
(b) Length of service minimum length of service
requirement is at least 10 years.
(c) Age requirement not less than 50 years of
age.
(d) It must be availed of the employee only once.
For purposes of exclusion, if you are retiring and the
employer has its own retirement policy, the private
benefit plan should comply with these requirements.
When the employee retires under the reasonable private
benefit plan at 49 years of age, would his retirement excluded
or taxable?
TAXABLE, because the requirement is that the employee must
be at least 50 years old.
If he retired at 50, but his length of service is only 8 years, will
the retirement benefit be excluded or taxable?
TAXABLE, because minimum length of service requirement is
at least 10 years. All the requirements must be complied with.
For purposes of exclusion, and for purposes of being taxed,
what is the essential requirement?
3 Manresa 2016-2017
SECTION 32 (B)
6) (b) Any amount received by an official or employee or by his heir
separation of such official or employee from the service of the employer
disability or for any cause beyond the control of the said official or employ
Section 32 B, #6 (b) pertains to treatment of separation pay.
Payment on account of death, sickness or other physical
disability or for any cause beyond the control of the official or
employee, then the separation pay is excluded. For purposes
of the exclusion, it does not only cover the death sickness or
other physical disability of the employee but for any cause. All
other causes, for as long as they are involuntary or
beyond the control of said employee, the separation pay
shall be excluded. However, if the cause of the separation
is one within the control of the employee (voluntary),
separation pay is taxable. Example is resignation. In labor
law, when you resign, you are not entitled to separation pay.
But despite that, the employer extended separation pay. That
separation pay becomes taxable.
SCENARIO: If you resigned because you applied for job
abroad. The employer abroad told you to get the next flight, so
you resigned. Your employer in the Philippines learned about it
and gave you separation pay. What is the treatment of that
separation pay? It will now be taxable because it was
voluntary.
There are instances when despite resignation, the resignation
is not voluntary. Example: Business acquisition or business
combination (merger, consolidation). The new owners will bring
the new managers. Previous managers will tender their
resignation, allowing the new management to have free hands
to run the business. The old managers will be given separation
pay. What is the treatment? The resignation is INVOLUNTARY
because they extended that courtesy for purposes of allowing
the employer to have a free hand. Being involuntary in nature,
it is beyond the control of said employees, therefore the
separation pay is excluded.
13
TAXATION 1
Based on the Lectures of Dean Quibod
Under (i), when he join the contest and sent his application to
join and he won. Despite that it was a recognition of religious,
charitable, scientific, etc., prizes and awards are now taxable
because the recipient took action to enter the contest. But
when he was nominated without him knowing about such fact,
for that recognition or for that prize and award, you were
selected, then comes the exclusion.
(f) Benefits received from the GSIS under Republic Act No.
8291, including retirement gratuity received by government
officials and employees.
The retirement gratuity received by the retiring officials and
employees would cover the terminal leave pay as well as
unused leave credits which are not convertible to cash. The
law excludes them from the tax.
(7) Miscellaneous Items. (a) Income Derived by Foreign Government. - Income
derived from investments in the Philippines in loans, stocks,
bonds or other domestic securities, or from interest on deposits
3 Manresa 2016-2017
14
TAXATION 1
Based on the Lectures of Dean Quibod
awards granted to athletes in local and international sports
competitions and tournaments whether held in the Philippines
or abroad and sanctioned by their national sports associations.
The one who won in the Olympics, so the prizes and awards
granted in local as well as international sports competition,
whether in the Philippines or abroad. One important
requirement is that the participation must be recognized and
approved and allowed by the respective sports association.
(h) Gains from Redemption of Shares in Mutual Fund. Gains realized by the investor upon redemption of shares of
stock in a mutual fund company as defined in Section 22 (BB)
of this Code.
3 Manresa 2016-2017
15
TAXATION 1
Based on the Lectures of Dean Quibod
3 Manresa 2016-2017
(Z) The term 'ordinary income' includes any gain from the
sale or exchange of property which is not a capital asset or
property described in Section 39(A)(1). Any gain from the sale
or exchange of property which is treated or considered, under
other provisions of this Title, as 'ordinary income' shall be
treated as gain from the sale or exchange of property which is
not a capital asset as defined in Section 39(A)(1). The term
'ordinary loss' includes any loss from the sale or exchange of
property which is not a capital asset. Any loss from the sale or
exchange of property which is treated or considered, under
other provisions of this Title, as 'ordinary loss' shall be treated
as loss from the sale or exchange of property which is not a
capital asset.
Capital gain gain on a capital asset.
When there is sale or disposition of ordinary assets, we call it
ordinary income. When there is loss, we call it ordinary loss.
16
TAXATION 1
Based on the Lectures of Dean Quibod
income derived from sources within the Philippines.
C.
Partnerships:
Individuals
A. Citizens
Resident alien
Non-resident alien :
a) Engaged in trade or business
b) Not engaged in trade or business
II.
CORPORATIONS
A.
B.
Foreign Corporation:
Philippines
17
TAXATION 1
Based on the Lectures of Dean Quibod
Section 24. Income Tax Rates.
(A) Rates of Income Tax on Individual Citizen and Individual
Resident Alien of the Philippines.
An income tax is hereby imposed:
(a) On the taxable income defined in Section 31 of this
Code, other than income subject to tax under
Subsections (B), (C) and (D) of this Section, derived
for each taxable year from all sources within and
without the Philippines be every individual citizen of
the Philippines residing therein;
(b) On the taxable income defined in Section 31 of this
Code, other than income subject to tax under
Subsections (B), (C) and (D) of this Section, derived
for each taxable year from all sources within the
Philippines by an individual citizen of the Philippines
who is residing outside of the Philippines including
overseas contract workers referred to in Subsection(C)
of Section 23 hereof; and
(c) On the taxable income defined in Section 31 of this
Code, other than income subject to tax under
Subsections (b), (C) and (D) of this Section, derived
for each taxable year from all sources within the
Philippines by an individual alien who is a resident of
the Philippines.
The tax shall be computed in accordance with and at the rates
established in the following schedule:
Not over
P10,000
18
TAXATION 1
Based on the Lectures of Dean Quibod
income after tax of an association, a joint account, or a joint
venture or consortium taxable as a corporation of which he is a
member or co-venturer:
Six percent (6%) beginning January 1, 1998;
Eight percent (8%) beginning January 1,
1999;
Ten percent (10% beginning January 1,
2000.
Provided, however, That the tax on dividends
shall apply only on income earned on or after
January 1, 1998. Income forming part of
retained earnings as of December 31, 1997
shall not, even if declared or distributed on or
after January 1, 1998, be subject to this tax.
Not
over 5
P100,000 %
August 18,2016
Jennifer Lim
GOING BACK TO SECTION 24.
SEC. 24. Income Tax Rates. (A) Rates of Income Tax on Individual Citizen and
Individual Resident Alien of the Philippines.-
On any amount in 10
excess
of %
P100,000
D) Capital Gains from Sale of Real Property. (1) In General. - The provisions of Section 39(B)
notwithstanding, a final tax of six percent (6%) based on the
gross selling price or current fair market value as determined in
accordance with Section 6(E) of this Code, whichever is higher,
is hereby imposed upon capital gains presumed to have been
realized from the sale, exchange, or other disposition of real
property located in the Philippines, classified as capital assets,
including pacto de retro sales and other forms of conditional
sales, by individuals, including estates and trusts: Provided,
That the tax liability, if any, on gains from sales or other
dispositions of real property to the government or any of its
political subdivisions or agencies or to government-owned or
controlled corporations shall be determined either under
Section 24 (A) or under this Subsection, at the option of the
taxpayer.
(2) Exception. - The provisions of paragraph (1) of this
Subsection to the contrary notwithstanding, capital gains
3 Manresa 2016-2017
19
TAXATION 1
Based on the Lectures of Dean Quibod
other than income subject to tax under Subsections (B), (C)
and (D) of this Section, derived for each taxable year from all
sources within the Philippines by an individual alien who is a
resident of the Philippines.
In Section 24, it refers to the rates imposed to the tax payers
who are citizens whether resident or non-resident and then to
the resident alien.
Section 24(A), we have the rates of 5-32 %. These rates will
be used for the compensation or income of citizens and
resident aliens as well as all other types of income not subject
to the preferential tax rates.
So if you are a citizen and resident alien and your income is
not under paragraphs b, c and d then the rates applicable to
you will be 5- 32%. Because b, c and d are preferential tax
rates for specific types of income.
LETS MOVE ON TO SECTION 24 (B), (C) AND (D).
Note: Dean said he will leave us responsible to read the codal
provisions.
(B) Rate of Tax on Certain Passive Income: (1) Interests, Royalties, Prizes, and Other Winnings. A final tax at the rate of twenty percent (20%) is hereby
imposed upon the amount of interest from any currency bank
deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements;
royalties, except on books, as well as other literary works and
musical compositions, which shall be imposed a final tax of ten
percent (10%); prizes (except prizes amounting to Ten
thousand pesos (P10,000) or less which shall be subject to tax
under Subsection (A) of Section 24; and other winnings (except
Philippine Charity Sweepstakes and Lotto winnings), derived
from sources within the Philippines: Provided, however, That
interest income received by an individual taxpayer (except a
nonresident individual) from a depository bank under the
expanded foreign currency deposit system shall be subject to a
final income tax at the rate of seven and one-half percent (7
1/2%) of such interest income: Provided, further, That interest
income from long-term deposit or investment in the form of
savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments
evidenced by certificates in such form prescribed by the
Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax
imposed under this Subsection: Provided, finally, That should
the holder of the certificate pre-terminate the deposit or
investment before the fifth (5th) year, a final tax shall be
imposed on the entire income and shall be deducted and
withheld by the depository bank from the proceeds of the longterm deposit or investment certificate based on the remaining
maturity thereof:
Four (4) years to less than five (5) years - 5%;
Three (3) years to less than (4) years - 12%; and
Less than three (3) years - 20%
5%
10%
20
TAXATION 1
Based on the Lectures of Dean Quibod
(D) Capital Gains from Sale of Real Property. (1) In General. - The provisions of Section 39(B)
notwithstanding, a final tax of six percent (6%) based on the
gross selling price or current fair market value as determined in
accordance with Section 6(E) of this Code, whichever is higher,
is hereby imposed upon capital gains presumed to have been
realized from the sale, exchange, or other disposition of real
property located in the Philippines, classified as capital assets,
including pacto de retro sales and other forms of conditional
sales, by individuals, including estates and trusts: Provided,
That the tax liability, if any, on gains from sales or other
dispositions of real property to the government or any of its
political subdivisions or agencies or to government-owned or
controlled corporations shall be determined either under
Section 24 (A) or under this Subsection, at the option of the
taxpayer;
Now take note also that for purposes of the 6% the property
must be found in the Philippines.
What if you have a real property or condo abroad tapos
binenta mo, kumita ka, is the property taxable in the
Philippines? And you are a resident citizen wherein you are
taxed on all sources. is the 6% capital gains tax applicable?
No more. because the criteria is a property located in the
Philippines. So ano ngayon gagamitin mo? Then you will use
the 5-32%.
As we mentioned, the 5-32% is the applicable tax rates if they
are foreign sourced income of a resident citizen or the income
of a citizen which are not subject to preferential tax rates or
income which are not b c or d of this section. In other
words, the rates 5-32% will be the catch-all of other income not
subject to the mentioned. It does not follow na hindi magiging
taxable (yung condo), magiging taxable and the rate will be 532%.
(2) Exception. - The provisions of paragraph (1) of this
Subsection to the contrary notwithstanding, capital gains
presumed to have been realized from the sale or disposition of
their principal residence by natural persons, the proceeds of
which is fully utilized in acquiring or constructing a new
principal residence within eighteen (18) calendar months from
the date of sale or disposition, shall be exempt from the capital
gains tax imposed under this Subsection: Provided, That the
historical cost or adjusted basis of the real property sold or
disposed shall be carried over to the new principal residence
built or acquired: Provided, further, That the Commissioner
shall have been duly notified by the taxpayer within thirty (30)
days from the date of sale or disposition through a prescribed
return of his intention to avail of the tax exemption herein
mentioned: Provided, still further, That the said tax exemption
can only be availed of once every ten (10) years: Provided,
finally, That if there is no full utilization of the proceeds of sale
or disposition, the portion of the gain presumed to have been
realized from the sale or disposition shall be subject to capital
gains tax. For this purpose, the gross selling price or fair
market value at the time of sale, whichever is higher, shall be
multiplied by a fraction which the unutilized amount bears to
the gross selling price in order to determine the taxable portion
and the tax prescribed under paragraph (1) of this Subsection
shall be imposed thereon.
3 Manresa 2016-2017
21
TAXATION 1
Based on the Lectures of Dean Quibod
notified by the taxpayer within thirty (30) days from the
date of sale or disposition through a prescribed return
of his intention to avail of the tax exemption
4.
4. The said tax exemption can only be availed of
only once every ten (10) years
For the clarification, you have still the rates of 20% or cash or
property dividends 20% or interest, royalties and other forms,
winning and prizes, except prizes 10k below except also for
PCSO and Lotto the rate is 20%.
the Philippines. -
22
TAXATION 1
Based on the Lectures of Dean Quibod
regional operational headquarters of multinationals(C). Aliens
employed by offshore banking units(D), and aliens employed
by petroleum service contractor (E).
So you have here a rate of 15%. Now the rate of 15% given to
the expats will be the same rate to the Filipino counterpart. So
Filipinos employed and occupied the same positions as those
of the aliens/expats will also be given a similar rate of 15%.
Otherwise this would be a deprivation; yong alien expats will
3 Manresa 2016-2017
23
TAXATION 1
Based on the Lectures of Dean Quibod
that the 10% applicable tax rate is to be applied when the
predominant income is tuition. But if the predominant income is
non-tuition, then the regular corporate income tax is applicable
so it will now the the total income.
If more than 50% of the taxable income constitutes tuition, then
you apply the 10% rate. If the predominant income meaning
more than 50% of the total income is non-tuition, like rentals
and yung ibang kinikita, whatever income derived to will be
subject to the 30% income tax rate. So if the predominant
tuition 10%; if non-tuition 30%.
Who are
institutions?
covered
by
these
proprietary
educational
3 Manresa 2016-2017
(A) Tax on Resident Foreign Corporations. (1) In General. - Except as otherwise provided in this Code, a
corporation organized, authorized, or existing under the laws of
any foreign country, engaged in trade or business within the
Philippines, shall be subject to an income tax equivalent to
thirty-five percent (35%) of the taxable income derived in the
preceding taxable year from all sources within the Philippines:
Provided, That effective January 1, 2009, the rate of income
tax shall be thirty percent (30%). [22]
In the case of corporations adopting the fiscal-year accounting
period, the taxable income shall be computed without regard to
the specific date when sales, purchases and other transactions
occur. Their income and expenses for the fiscal year shall be
deemed to have been earned and spent equally for each
month of the period.
The corporate income tax rate shall be applied on the amount
computed by multiplying the number of months covered by the
new rate within the fiscal year by the taxable income of the
corporation for the period, divided by twelve. [23]
Provided, however, That a resident foreign corporation shall be
granted the option to be taxed at fifteen percent (15%) on
gross income under the same conditions, as provided in
Section 27 (A).
Tax treatment Resident Foreign Coporations. These are
corporations organized abroad authorized to do business in the
Philippines also taxed at 30%. The non-resident foreign
corporation will also be subject to these tax treatments 30%.
The treatment for computing the corporate income tax due
either for 30% or 2%.
Now there are Resident Foreign Corporations who are
engaged in a particular type of business. like number 3
international carriers doing business in the Philippines.
(Singapore Air, etc.).
(3) International Carrier. - An international carrier doing
24
TAXATION 1
Based on the Lectures of Dean Quibod
business in the Philippines shall pay a tax of two and one-half
percent (2 1/2 %) on its 'Gross Philippine Billings' as defined
hereunder:
(a) International Air Carrier. - 'Gross Philippine Billings'
refers to the amount of gross revenue derived from carriage of
persons, excess baggage, cargo, and mail originating from the
Philippines in a continuous and uninterrupted flight, irrespective
of the place of sale or issue and the place of payment of the
ticket or passage document: Provided, That tickets revalidated,
exchanged and/or indorsed to another international airline form
part of the Gross Philippine Billings if the passenger boards a
plane in a port or point in the Philippines: Provided, further,
That for a flight which originates from the Philippines, but
transshipment of passenger takes place at any part outside the
Philippines on another airline, only the aliquot portion of the
cost of the ticket corresponding to the leg flown from the
Philippines to the point of transshipment shall form part of
Gross Philippine Billings.
(b)
International
Shipping. 'Gross
Philippine
Billings' means gross revenue whether for passenger, cargo
or mail originating from the Philippines up to final destination,
regardless of the place of sale or payments of the passage or
freight documents.
3 Manresa 2016-2017
25
TAXATION 1
Based on the Lectures of Dean Quibod
salaries, wages premiums, annuities, emoluments or other
3.
4.
So kung mag remit ang branch office ng $100, ang mag dating
doon, $85 na lang because 15% has been deducted. The
branch profit will be taxed. But the 15% is based on the total
profits applied, not the net profits.
That used to be an issue before, kasi pag remit nila at pag
dating doon sa HongKong or abroad, it was then less 15% pa.
But that has been clarified by the Supreme Court. It should be
based on the profits applied or earmarked for remittance. As
clarified by the Supreme Court, it is the total profits which will
be applied without deduction for the tax component thereof. In
other words, pag dating doon automatically set na, wala nang
further deductions.
Then we have Number 6, the Regional Area Or Head
Quarters And Regional Operating Head Quarters Of Multi
National Companies.
The Regional Head Quarter area is not taxable but the
Regional Operating Headquarters is taxable at 10% of their
taxable income.
Then you have tax on certain incomes received by a resident
foreign corporation:
2.
3 Manresa 2016-2017
Take note also that these rates, these are dividends from a
domestic source of these corporations. The stockholders are
citizen, resident aliens, non-resident aliens or a non-resident
alien in business and trade or a non-resident alien not engaged
in business and trade, or a domestic corporation. They are the
owners or stock holders who are the recipients of dividends
coming from the domestic sources.
If the dividends came from a domestic foreign corporation, take
note that the taxability of all sources will be applicable only to
resident citizens and domestic corporation. Kasi taxable sila
within and without the Philippines. So the dividends from a
foreign corporation received by a citizen are not taxable.
The non-resident alien or the non-resident citizen. In so far as
the resident alien, not taxable. Because they are only taxable
within. Likewise all the aliens for that matter taxable na siya.
The rate then is 30%, the regular tax rate. Pag foreign hindi
taxable kasi foreign source man yan. Foreign corporations are
also sourced from income within and not outside the country.
Take note of how the tax dividends move correspondingly to
the individual recipients.
Then you have this IMPROPERLY
EARNINGS TAX UNDER SECTION 29.
ACCUMULATED
26
TAXATION 1
Based on the Lectures of Dean Quibod
why you should divide or give rewards for profits to the stock
holders of corporations.
Now in accumulating also earnings, the corporations do not
uphold the accumulated earnings. The burden that on these
accumulated earnings are on the tax payer now. He has to
prove to the BIR that there is a need or a reasonable business
and on why they need to accumulate the earnings of the
declaration of dividends as when they would contemplate
expansion- they want to buy new equipment and machineries.
Instead of borrowing money, they resort to capital sourcing as
funds or capital to expand. Therefore, the accumulation is
justified.
Once justified, the BIR will withdraw from assessing you the
10% tax. Again, the burden of proving otherwise is with the tax
payer. The term reasonable means of business depends upon
the tax payer to justify the reasonably anticipated needs of the
business.
SECTION 30 YOU HAVE THE EXEMPTIONS FROM TAX ON
CORPORATIONS
SEC. 30. Exemptions from Tax on Corporations. - The
following organizations shall not be taxed under this Title in
respect to income received by them as such:
(A) Labor, agricultural or horticultural
organized principally for profit;
organization
not
3 Manresa 2016-2017
27
TAXATION 1
Based on the Lectures of Dean Quibod
In YMCA, it was argued that it was a charitable educational
institution. But in this case, Supreme Court said that while it is
an exempted institution for tax purposes it rented some of its
spaces for lessees. It had a parking lot for its members but it
allowed non-members to park provided that they pay parking
fees. So income was earned from the parking fees collected
from non-members and rents from the rents of its spaces in the
building.
All these income were used for the objective of YMCA. Now
they claim exemption. SC ruled that they cannot claim
exemption even if the income was flowed back to its purpose
or used for their non-profit objective because of the last
paragraph of Section 30. Income of whatever kind. Kahit ano
pang income yan whatever kind or character from any of the
properties.
For example: a building doon nila nilagay ang office and other
tax exempt activities and ngayon binenta nila yung kainilang
building or lot, and construct a new one.
August 25,2016
Weng Resurreccion
Those workers which are covered under the minimum wage
law or what we call minimum wage earners, their
compensation income are not taxable.They cover both the
government and private and it includes the ovetime pay, night
shift differential, hazard pay received by these minimum wage
earners. If the compensation income received is over and
above the minimum wage, it is no longer covered by the
exemption. The tax treatment is not the difference, i.e, the
3 Manresa 2016-2017
minimum wage is 300 and he is given 350, ang itax nyo lang is
the 50 differential. No. He would be taxed entirely. So,lets say
the monthly min wage is is 8k, but you are receiving 10k, then
the entire 10k is taxable.
In the case of the husband and the wife, teh
spouses are given a separate income tax rate while on
the case of par. B in case of interest, royalties, prizes and
other winnings, they have tax rate of 20% excpt on
rayalties on books, musical and other literary
compositions which is taxed at 10%.
Prizes are taxed at 20% those 10k or below which is taxed
based on the schedular rate under 24A. So, the prizes under
10k should be added to the regular income. Winnings, it shall
also be subject to 20% final withholding tax except those
PCSO and lotto winnings which are tax exempt.
We also have ecpanded foreign currency deposit(EFCD)
which is subject to 7 1/2 tax rate but what is taxed is the
interest income. While long term deposits are tax free which
has a maturity of 5 years or more. If during the lifetime of the
deposit, the tax payer decided to pre-terminate, it becomes
taxable. The rate will depend on the date of the pre
termination.
In the case of cash or property dividends, take note
of the various types of dividends. What is taxable here
pertains to cash and property dividends. Dividends are
distribution of profits of corporations to theri stock holders.
Now, the scope of the taxation of dividends is 10%? In the
case of citizens and resident alien. This 2 will cover also
distribution of profits of partnerships except when it is
engaged in a professional partnership engaged in the
practice of a profession; When you are given a share of
income in latter, then that income is taxed as part of the
individual partner income.
As to business partnership, being taxable enities are
taxed like corporations.
As to capital gains for the sale of shares of stocks
that are no traded are 5 or 10%. The tax treatment here is
that the first 100k is taxed at 5% while the excess thereof
is taxed at 10%. While capital gains on sale of real
property, it pertains to property considered as capital
asset. These are real properties of an individual citizen
etc that are not used for business. These includes
exchange or other dispositions, such as foreclosure of
mortgage. After the expiration of the redemption period,
the highest bidder thereof shall pay a capital gains tax.
If a GOCC or any of its political subdivision would
purchase a property, then the option would belong to the
seller whether the tax rate would be the schedular tax rate
or the 6%. If it is in 6% capital gains tax, you have there a
tax base which is the gross selling price or the fair market
value as determined by the Commissioner or the
Provincial or City Assessor whichever is higher. But if the
seller choose the schedular rate then the tax base therein
is the gain from the sale. Take note also the requirement
for the applicatio of the exemption if you would sell a
house and lot and you decide to rebuild another using the
proceeds, then you can apply for he exemption.
In case of corporations, we have the NCIT which
applies to domestic as well as resident foreign
28
TAXATION 1
Based on the Lectures of Dean Quibod
corporations including all other corporation subject to
regular based tax. So hhere in Section 27(E) and the
applicable concession under 28(A)(2), is the treatment of
the NCIT. So, the minmum corporate income tax of 2% of
the gross income is also imposed on corporations taxable
under NCIT.
In other words, if you are a corporation taxed a 30%,
then you will also be assessed the 2% MCIT, and you will
pay whichever is higher. And if you are taxed at a special
rate, then the MCIT does not apply such as international
carriers which is a resident foreign corporation. Ordinarily,
resident foreign corporations are taxed at 30% but if it is
an international carrier, then it is taxed at 2 1/2% of their
Gross Philippine Billing. The computation now is quarterly
but let as assume it is still in the yearly scheme. Lets say
you have a corporation:
2010
2011
2012
Total
Excess
Tax Due
NCIT
of
30%
100,000
130,000
200,000
MCIT of 2%
Excess
150,000
190,000
180,000
50, 000
60,000
110,000
200,000-110,0000=90,000
3 Manresa 2016-2017
assistance
to
the
employee
or
his
29
TAXATION 1
Based on the Lectures of Dean Quibod
(10) Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what the law
allows.
(C) Fringe Benefits Not Taxable. - The following fringe
benefits are not taxable under this Section:
(1) fringe benefits which are authorized and exempted from
tax under special laws;
(2) Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization benefit
plans;
(3) Benefits given to the rank and file employees, whether
granted under a collective bargaining agreement or not; and
(4) De minimis benefits as defined in the rules and
regulations to be promulgated by the Secretary of Finance,
upon recommendation of the Commissioner.
The Secretary of Finance is hereby authorized to
promulgate, upon recommendation of the Commissioner,
such rules and regulations as are necessary to carry out
efficiently and fairly the provisions of this Section, taking into
account the peculiar nature and special need of the trade,
business or profession of the employer.
(A)
Imposition of Fringe Benefits Tax A final
withholding tax is hereby imposed on the grossed-up monetary
value of fringe benefit furnished, granted or paid by the
employer to the employee, except rank and file employees as
defined in these Regulations, whether such employer is an
individual, professional partnership or a corporation, regardless
of whether the corporation is taxable or not, or the government
and its instrumentalities except when: (1) the fringe benefit is
required by the nature of or necessary to the trade, business or
profession of the employer; or (2) when the fringe benefit is for
the convenience or advantage of the employer. The fringe
benefit tax shall be imposed at the following rates:
Effective January 1, 1998
Effective January 1, 1999
Effective January 1, 2000
34%
33%
32%
66%
67%
68%
30
TAXATION 1
Based on the Lectures of Dean Quibod
Moreover, these regulations do not cover those
benefits properly forming part of compensation income subject
to withholding tax on compensation in accordance with
Revenue Regulations No. 2-98.
Fringe benefits which have been paid prior to
January 1, 1998 shall not be covered by these Regulations.
Determination of the Amount Subject to the
Fringe Benefit Tax In general, the computation of the fringe
benefits tax would entail (a) valuation of the benefit granted
and (b) determination of the proportion or percentage of the
benefit which is subject to the fringe benefit tax. That the Tax
Code allows for the cases where only a portion (i.e. less than
100 per cent) of the fringe benefit is subject to the fringe benefit
tax is clearly stated in Section 33 (a) of R.A. 8424 which
stipulates that fringe benefits which are "required by the nature
of, or necessary to the trade, business or profession of the
employer, or when the fringe benefit is for the convenience or
advantage of the employer" are not subject to the fringe benefit
tax. Thus, in cases where the fringe benefits entail joint
benefits to the employer and employee, the portion which shall
be subject to the fringe benefits tax and the guidelines for the
valuation of fringe benefits are defined under these rules and
regulations.
Unless otherwise provided in these regulations, the
valuation of fringe benefits shall be as follows:
(1)
If the fringe benefit is granted in money, or is
directly paid for by the employer, then the value is the amount
granted or paid for.
(2)
If the fringe benefit is granted or furnished by
the employer in property other than money and ownership is
transferred to the employee, then the value of the fringe benefit
shall be equal to the fair market value of the property as
determined in accordance with Sec. 6 (E) of the Code
(Authority of the Commissioner to Prescribe Real Property
Values).
(3)
If the fringe benefit is granted or furnished by
the employer in property other than money but ownership is not
transferred to the employee, the value of the fringe benefit is
equal to the depreciation value of the property.
Taxation of fringe benefit received by a nonresident alien individual who is not engaged in trade or
business in the Philippines A fringe benefit tax of twentyfive percent (25%) shall be imposed on the grossed-up
monetary value of the fringe benefit. The said tax base shall be
computed by dividing the monetary value of the fringe benefit
by seventy-five per cent (75%).
Taxation of fringe benefit received by
(1) an alien individual employed by regional or area
headquarters of a multinational company or by regional
operating headquarters of a multinational company;
(2) an alien individual employed by an offshore
banking unit of a foreign bank established in the Philippines;
(3) an alien individual employed by a foreign service
contractor or by a foreign service subcontractor engaged in
petroleum operations in the Philippines; and
3 Manresa 2016-2017
Housing privilege
(a)
If the employer leases a residential property
for the use of his employee and the said property is the usual
place of residence of the employee, the value of the benefit
shall be the amount of rental paid thereon by the employer, as
evidenced by the lease contract. The monetary value of the
fringe benefit shall be fifty per cent (50%) of the value of the
benefit.
(b)
If the employer owns a residential property
and the same is assigned for the use of his employee as his
usual place of residence, the annual value of the benefit shall
be five per cent (5%) of the market value of the land and
improvement, as declared in the Real Property Tax Declaration
Form, or zonal value as determined by the Commissioner
pursuant to Section 6(E) of the Code (Authority of the
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TAXATION 1
Based on the Lectures of Dean Quibod
Commissioner to Prescribe Real Property Values), whichever
is higher. The monetary value of the fringe benefit shall be fifty
per cent (50%) of the value of the benefit. cda
The monetary value of the housing fringe benefit is
equivalent to the following:
MV = [5%(FMV or ZONAL VALUE] X 50%
WHERE:
MV = MONETARY VALUE
FMV = FAIR MARKET VALUE
(c)
If the employer purchases a residential
property on installment basis and allows his employee to use
the same as his usual place of residence, the annual value of
the benefit shall be five per cent (5%) of the acquisition cost,
exclusive of interest. The monetary value of fringe benefit shall
be fifty per cent (50%) of the value of the benefit.
(d)
If the employer purchases a residential
property and transfers ownership thereof in the name of the
employee, the value of the benefit shall be the employer's
acquisition cost or zonal value as determined by the
Commissioner pursuant to Section 6(E) of the Code (Authority
of the Commissioner to Prescribe Real Property Values),
whichever is higher. The monetary value of the fringe benefit
shall be the entire value of the benefit.
(e)
If the employer purchases a residential
property and transfers ownership thereof to his employee for
the latter's residential use, at a price less than the employer's
acquisition cost, the value of the benefit shall be the difference
between the fair market value, as declared in the Real Property
Tax Declaration Form, or zonal value as determined by the
Commissioner pursuant to Sec. 6(E) of the Code (Authority of
the Commissioner to Prescribe Real Property Values),
whichever is higher, and the cost to the employee. The
monetary value of the fringe benefit shall be the entire value of
the benefit.
(f)
Housing privilege of military officials of the
Armed Forces of the Philippines (AFP) consisting of officials of
the Philippine Army, Philippine Navy and Philippine Air Force
shall not be treated as taxable fringe benefit in accordance with
the existing doctrine that the State shall provide its soldiers
with necessary quarters which are within or accessible from the
military camp so that they can be readily on call to meet the
exigencies of their military service.
(g)
A housing unit which is situated inside or
adjacent to the premises of a business or factory shall not be
considered as a taxable fringe benefit. A housing unit is
considered adjacent to the premises of the business if it is
located within the maximum of fifty (50) meters from the
perimeter of the business premises.
(h)
Temporary housing for an employee who
stays in a housing unit for three (3) months or less shall not be
considered a taxable fringe benefit.
(2)
Expense account
(a)
In general, expenses incurred by the
employee but which are paid by his employer shall be treated
as taxable fringe benefits, except when the expenditures are
duly receipted for and in the name of the employer and the
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(a)
If the employer purchases the motor vehicle
in the name of the employee, the value of the benefit is the
acquisition cost thereof. The monetary value of the fringe
benefit shall be the entire value of the benefit, regardless of
whether the motor vehicle is used by the employee partly for
his personal purpose and partly for the benefit of his employer.
(b)
If the employer provides the employee with
cash for the purchase of a motor vehicle, the ownership of
which is placed in the name of the employee, the value of the
benefits shall be the amount of cash received by the employee.
The monetary value of the fringe benefit shall be the entire
value of the benefit regardless of whether the motor vehicle is
used by the employee partly for his personal purpose and
partly for the benefit of his employer, unless the same was
subjected to a withholding tax as compensation income under
Revenue Regulations No. 2-98.
(c)
If the employer purchases the car on
installment basis, the ownership of which is placed in the name
of the employee, the value of the benefit shall be the
acquisition cost exclusive of interest, divided by five (5) years.
The monetary value of the fringe benefit shall be the entire
value of the benefit regardless of whether the motor vehicle is
used by the employee partly for his personal purpose and
partly for the benefit of his employer.
(d)
If the employer shoulders a portion of the
amount of the purchase price of a motor vehicle the ownership
of which is placed in the name of the employee, the value of
the benefit shall be the amount shouldered by the employer.
The monetary value of the fringe benefit shall be the entire
value of the benefit regardless of whether the motor vehicle is
used by the employee partly for his personal purpose and
partly for the benefit of his employer.
(e)
If the employer owns and maintains a fleet of
motor vehicles for the use of the business and the employees,
the value of the benefit shall be the acquisition cost of all the
motor vehicles not normally used for sales, freight, delivery
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TAXATION 1
Based on the Lectures of Dean Quibod
service and other non-personal used divided by five (5) years.
The monetary value of the fringe benefit shall be fifty per cent
(50%) of the value of the benefit.
The monetary value of the motor vehicle fringe
benefit is equivalent to the following:
MV = [(A)/5] X 50%
where:
MV = Monetary value
A = acquisition cost
(f)
If the employer leases and maintains a fleet
of motor vehicles for the use of the business and the
employees, the value of the benefit shall be the amount of
rental payments for motor vehicles not normally used for sales,
freight, delivery, service and other non-personal use. The
monetary value of the fringe benefit shall be fifty per cent
(50%) of the value of the benefit.
(g)
The use of aircraft (including helicopters)
owned and maintained by the employer shall be treated as
business use and not be subject to the fringe benefits tax.
(h)
The use of yacht whether owned and
maintained or leased by the employer shall be treated as
taxable fringe benefit. The value of the benefit shall be
measured based on the depreciation of a yacht at an estimated
useful life of 20 years.
(4)
Household expenses Expenses of the
employee which are borne by the employer for household
personnel, such as salaries of household help, personal driver
of the employee, or other similar personal expenses (like
payment for homeowners association dues, garbage dues,
etc.) shall be treated as taxable fringe benefits.
(5)
(a)
If the employer lends money to his employee
free of interest or at a rate lower than twelve per cent (12%),
such interest foregone by the employer or the difference of the
interest assumed by the employee and the rate of twelve per
cent (12%) shall be treated as a taxable fringe benefit.
(b)
The benchmark interest rate of twelve per
cent (12%) shall remain in effect until revised by a subsequent
regulation.
(c)
This regulation shall apply to installment
payments or loans with interest rate lower than twelve per cent
(12%) starting January 1, 1998.
(6)
Membership fees, dues, and other
expenses borne by the employer for his employee, in
social and athletic clubs or other similar organizations.
These expenditures shall be treated as taxable fringe benefits
of the employee in full.
(7)
(a)
Reasonable business expenses which are
paid for by the employer for the foreign travel of his employee
for the purpose of attending business meetings or conventions
shall not be treated as taxable fringe benefits. In this instance,
inland travel expenses (such as expenses for food, beverages
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TAXATION 1
Based on the Lectures of Dean Quibod
law; and (b) the cost of premiums borne by the employer for
the group insurance of his employees.
(10)
Flowers, fruits, books or similar items given
to employees under special circumstances, e.g. on account of
illness, marriage, birth of a baby, etc
(C)
Fringe Benefits Not Subject to Fringe
Benefits Tax In general, the fringe benefits tax shall not be
imposed on the following fringe benefits:
(D)
Tax Accounting for the Fringe Benefit
Furnished to the Employee and the Fringe Benefit Tax Due
Thereon. As a general rule, the amount of taxable fringe
benefit and the fringe benefits tax shall constitute allowable
deductions from gross income of the employer. However, if the
basis for computation of the fringe benefits tax is the
depreciation value, the zonal value as determined by the
Commissioner pursuant to Section 6(E) of the Code or the fair
market value as determined in the current real property tax
declaration of a certain property, only the actual fringe benefits
tax paid shall constitute a deductible expense for the employer.
The value of the fringe benefit shall not be deductible and shall
be presumed to have been tacked on or actually claimed as
depreciation expense by the employer.
(1)
Fringe benefits which are authorized and
exempted from income tax under the Code or under any
special law;
(2)
Contributions of the employer for the benefit
of the employee to retirement, insurance and hospitalization
benefit plans;
(3)
Benefits given to the rank and file, whether
granted under a collective bargaining agreement or not;
(4)
De minimis benefits as defined in these
Regulations;
(5)
If the grant of fringe benefits to the employee
is required by the nature of, or necessary to the trade, business
or profession of the employer; or
(6)
If the grant of the fringe benefit is for the
convenience of the employer.
The exemption of any fringe benefit from the fringe
benefit tax imposed under this Section shall not be interpreted
to mean exemption from any other income tax imposed under
the Code except if the same is likewise expressly exempt from
any other income tax imposed under the Code or under any
other existing law. Thus, if the fringe benefit is exempted from
the fringe benefits tax, the same may, however, still form part of
the employee's gross compensation income which is subject to
income tax, hence, likewise subject to a withholding tax on
compensation income payment.
The term "DE MINIMIS" benefits which are exempt
from the fringe benefit tax shall, in general, be limited to
facilities or privileges furnished or offered by an employer to his
employees that are of relatively small value and are offered or
furnished by the employer merely as a means of promoting the
health, goodwill, contentment, or efficiency of his employees
such as the following:
(1)
Monetized unused vacation leave credits of
employees not exceeding ten (10) days during the year;
(2)
Medical cash allowance to dependents of
employees not exceeding P750 per semester or P125 per
month;
(3)
Rice subsidy of P350 per month granted by
an employer to his employees;
(4)
Uniforms given to employees by the
employer;
(5)
Medical benefits given to the employees by
the employer;
(6)
Laundry allowance of P150 per month;
(7)
Employee achievement awards, e.g. for
length of service or safety achievement, which must be in the
form of a tangible personal property other than cash or gift
certificate, with an annual monetary value not exceeding onehalf () month of the basic salary of the employee receiving
the award under an established written plan which does not
discriminate in favor of highly paid employees;
(8)
Christmas
and
major
anniversary
celebrations for employees and their guests;
(9)
Company picnics and sports tournaments in
the Philippines and are participated exclusively by employees;
and
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TAXATION 1
Based on the Lectures of Dean Quibod
benefit tax has already accrued but not yet paid, use the
account title "fringe benefit tax payable").
Credit:
P10,732.32
(2)
XYZ Corporation owns a condominium unit.
During the year 1998, the said corporation furnished and
granted the said property for the residential use of its Assistant
Vice-President. The fair market value of the said property as
determined by the Commissioner pursuant to Section 6(E) of
the Code amounts P10,000,000.00 while its fair market value
as shown in its current Real Property Tax Declaration amounts
to P8,000,000.00. In this case, the higher fair market value of
P10,000,000.00 as determined by the Commissioner shall be
used in computing the monetary of the fringe benefit so
furnished or granted to said employee and the fringe benefit
tax due thereon shall be computed as follows:
Cash/Fringe
benefit
tax
payable
It is based on the
Fringe benefit= gross-up monetary value x 32%
The tax base now is not the actual value.
Gross-up monetary value = actual value divided by 68
EXAMPLE:
Actual Value = 10,000,000 vehicle
Gross-up monetary value = 10,000,000
68%
= 147058.82
Fringe Benefit= 147058.82 x 32%
= 4595.59(?)
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TAXATION 1
Based on the Lectures of Dean Quibod
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