TAXATION 1 NOTES (Atty Rizalina Lumbera) – 

PRELIMS PERIOD
(SECS 22-30)
   Even if you are alive or you are dead, you are still subjected to SECTION 22 OF THE NIRC (definition of terms)
certain taxes
   TAXES WHEN YOU ARE ALIVE: Income Tax, VAT, Percentage Tax, (A)  Person – means any individual, a trust, estate or a corporation
Excise Tax, Documentary Stamp Tax (B)  Corporation – includes partnerships, no matter how created or
   TAXES WHEN YOU ARE DEAD: Estate Tax, DST organizes, joint stock companies, joint accounts, associations,
insurance companies, but does NOT include General
National Taxes professional partnerships and a joint venture or consortium
-  INCOME TAX: Direct tax on the right to receive income formed for the purpose of undertaking construction projects
-  ESTATE TAX: Transfer mortis causa projects or engaging in coal, geothermal, and other energy
-  DONOR’S TAX: Donations made inter vivos operations pursuant to an agreement under a service contract
-  VAT with the government
-  Percentage Tax o  General Profesional Partnerships –  partnerships formed
 
- Excise Tax bcoym pmeorsno pnrso ffeosrs iothne, n oso plaer tp
National and Local taxes are not in conflict with one another, they do not
ouf ripnocosem eo of f ewxhericchis iisn dg ertihveeidr
tax the same things and impose tax on different areas.
in engaging in any trade or business
(C) DOMESTIC – when applied to a corporation, means created or
Q: WHAT IS INCOME?
organized in the Philippines under its laws
(D)   FOREIGN – when applied to a corporation means corporation,
A: It is anything that flows in to the wealth of the taxpayer or increases
which is not domestic
the net worth of the taxpayer, other than the return capital, regardless if
(E)  NON RESIDENT CITIZEN
the income is derived from legal or illegal sources or that the income is in
o  A citizen of the Philippines who establishes to the
kind or cash
satisfaction of the commissioner the fact of his physical
presence abroad with a definite intention of residing
Q: WHEN IS INCOME TAXABLE?
theiren
A: When (1) it is actually or constructively received (2) it must be
o  A citizen of the Philippines who leaves the Philipines
realized (3) it must not be exempted by law
during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis
Q: What is income tax?
o  A citizen of the Philippines who works and derives
A: It is tax on the right to receive income, depends on the source of
income from abroad and whose employment thereat,
income.
requires him to be physically present abroad most of the
time during the taxable year

TYPES OF EARNERS
o
  A citizen who has been previously considered as non-
resident citizen and who arrives in the Philippines at any
time during the taxable year to reside permanently in the
   Compensation income earner: usually selling service, and under an Philippines shall likewise be treated as a non-resident
EE-ER relationship - “sweldo” citizen for the taxable year in which he arrives in the
   Self-Employed individual –  selling service, no EE-ER Philippines with respect to his income derived from
relationship, usually from trade or business sources abroad until the date of arrival in the Philippines
   Mixed Income Earner –  there is a profession, there is an EE-ER, o  The taxpayer shall submit proof to the commissioner to
there could be trade or business show his intention of leaving the Philippines to reside
permanently abroad or to return and to reside in the
KINDS OF TAXPAYERS Philippines as the case may be
(F)   RESIDENT ALIEN – an individual whose residence is within the
1.  
Individual Taxpayers Philippines and who is not a citizen thereof
a.   Resident Citizen (RC) (G)   NONRESIDENT ALIEN –  individual whose residence is not
b.   Non-Resident Citizen (NRC) within the Philippines and who is not a citizen thereof
c.   Resident Alien (RA) (H)   RESIDENT FOREIGN CORPORATION –  applies to a foreign
d.   Non-Resident Alien Engaged in Trade or Business corporation engaged in trade or business within the
(NRAETB) Philippines
e.   Non-Resident Alien NOT engaged in Trade or (I)   NON-RESIDENT FOREIGN CORPORATION – applies to a foreign
Business (NRANETB) corporation NOT engaged in trade or business within the
Note: Estate of a deceased person not yet settled or not yet distributed Philippines
among the heirs, is considered an individual income taxpayer (J)   FIDUCIARY –  guardian, trustee, executor, administrator,
receiver, conservator or any person acting in any fiduciary
Trustor-Trustee relationship, with no distribution yet is deemed as an capacity for any person
individual taxpayer (K)   WITHHOLDING AGENT – any person required to deduct and
withhold tax
2.   Corporate Taxpayers (L)   SHARES OF STOCK –  includes shares of stock in a
a.   Domestic Corporation CORPORATION Warrants and/or options to purchase shares
b.   Resident foreign corporation of stock, as well as units of participation in a partnership
c.   Non-resident foreign corporation (except general professional partnership), joint stock
corporations, joint ventures, taxable as corporations,
Partnerships – they are treated as corporate taxpayers associations, and recreation or amusement clubs, such as golf,
Two kinds of partnerships under the tax code: polo or similar clubs and mutual fund certificate
(M)   SHAREHOLDER – holders of a share/s of stock, warrant/s and
i.   General Professional Partnership: exercise of profession of the or options to purchase shares of stock in a corporation, as well
partners and no part of its income is derived from trade or as a holder of a unit of participation in a PAT xpn, GEN PROF
PAT in a joint stock company, as association, joint stock
business; not subject to tax caossropcoirattioions, ,a ndjo rinetc revateinotnu roers a,
ii. General Co-partnership– subject to tax, same rates as DC
o  Joint venture agreements are also subject to tax mutasxeambelen t calus bsc, osurpchor ast igoonlsf, polo or
similar clubs and mutual fund certificate, or insurance
company
MTAC 2019
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MTAC 2019
 (O)   INCLUDING/INCLUDES– shall not be deemed to exclude other
'ordinary loss' includes any loss from the sale or exchange of
things otherwise within the meaning of the term defined
property which is not a capital asset. Any loss from the sale or
(P)   TAXABLE YEAR – the calendar year, or the fiscal year ending
exchange of property which is treated or considered, under
during the calendar year, upon the basis of which the net
other provisions of this Title, as 'ordinary loss' shall be treated
income is computed under this title
as loss from the sale or exchange of property which is not a
   Taxable year – includes, in the case of a return made for a fractional
capital asset. – so yung loss or gain ng ordinary assets
part of a year under the provisions of this title or under rules and
(AA) The term "rank and file employees" shall mean all employees
regulations prescribed by the secretary of finance, upon
who are holding neither managerial nor supervisory position
recommendation of the commissioner, the period for which the
as defined under existing provisions of the Labor Code of the
return is made
Philippines, as amended.
(Q)   FISCAL YEAR –  means an accounting period of 12 months
(BB) The term "mutual fund company" shall mean an open-end and
ending on the last day of any month, other than December
close-end investment company as defined under the
(R)   PAID OR INCCURED/PAID OR ACCRUED – shall be construed
Investment Company Act.
according to the method of accounting upon the basis of which
(CC) The term "trade, business or profession" shall not include
the net income is computed under this title pEeEr-fEoRr mrealantcieo nosfh sipervices by the taxpayer as
(S)   TRADE OR BUSINESS –  includes performance of functions of
the public office an employee; no (DD) The term "regional or area
headquarters" shall mean a
(T)   SECURITIES –  shares of stock in a corporation and rights to provisions of this Title, as 'ordinary income' shall be treated as gain
subscribe for or to receive such shares from the sale or exchange of property which is not a capital asset as
o  Includes bonds, debentures. Notes, certificates or other defined in Section 39(A)(1). The term
evidence of indebtness issued by any corporation
including those issued by a government or political
subdivision thereof, with interest coupons or registers in
form
(U)   DEALER IN SECURITIES –  merchant of stocks or securities,
whether an individual partnership or corporation, with an
established place of business regularly engaged in the
purchase of securities and the resale thereof to customers that
is one who, as a merchant buys securities and re-sells them to
customers with a view to the gains and profits that may be
derived therefrom
(V)   BANK – any bank defined under the General Banking Act
a.   Kinds of banks: commercial, thrift, rural or
specialized government bank, development bank
(W)  NON- BANK FINANCIAL INTERMEDIARY –  performing quasi
banking services
(X)  The term "quasi-banking activities"  means borrowing funds
from twenty (20) or more personal or corporate lenders at
any one time, through the issuance, endorsement, or
acceptance of debt instruments of any kind other than
deposits for the borrower's own account, or through the
issuance of certificates of assignment or similar instruments,
with recourse, or of repurchase agreements for purposes of
relending or purchasing receivables and other similar
obligations: Provided, however, That commercial, industrial
and other non-financial companies, which borrow funds
through any of these means for the limited purpose of
financing their own needs or the needs of their agents or
dealers, shall not be considered as performing quasi-banking
functions.
(Y)   The term "deposit substitutes" shall mean an alternative from
of obtaining funds from the public (the term 'public' means
borrowing from twenty (20) or more individual or corporate
lenders at any one time) other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for
the borrowers own account, for the purpose of relending or
purchasing of receivables and other obligations, or financing
their own needs or the needs of their agent or dealer. These
instruments may include, but need not be limited to bankers'
acceptances, promissory notes, repurchase agreements,
including reverse repurchase agreements entered into by and
between the Bangko Sentral ng Pilipinas (BSP) and any
authorized agent bank, certificates of assignment or
 participation and similar instruments with recourse:  Provided,
however, That debt instruments issued for interbank call loans
with maturity of not more than five (5) days to cover
deficiency in reserves against deposit liabilities, including
those between or among banks and quasi-banks, shall not be
considered as deposit substitute debt instruments.
(Z)   The term "ordinary income" includes any gain from the sale
or exchange of property which is not a capital asset or property

dexescchrainbegde oinf pSreocptieornty 3w9h(Aic)h(1 i)s.

tArenayt egda ionr cfronmsi dtehre ds, aulne deor other

 branch established in the Philippines by multinational
companies and which headquarters do not earn or
derive income from the Philippines and which act as
supervisory, communications and coordinating center
for their affiliates, subsidiaries, or branches in the Asia-
Pacific Region and other foreign markets.
(EE)  The term "regional operating headquarters" shall
mean a
branch established in the Philippines by multinational
companies which are engaged in any of the following
services: general administration and planning; business
planning and coordination; sourcing and procurement
of raw materials and components; corporate finance
advisory services; marketing control and sales
promotion; training and personnel management;
logistic services; research and development services
and product development; technical support and
maintenance; data processing and
communications; and
business development.

(FF) The term "long-term deposit or investment

certificates" shall refer to certificate of time deposit or
investment in the form of savings, common or individual
trust funds, deposit substitutes, investment management
accounts and other investments with a maturity period of
not less than five (5) years, the form of which shall be
prescribed by the Bangko Sentral ng Pilipinas (BSP) and
issued by banks only (not by nonbank financial
intermediaries and finance companies) to individuals in
denominations of Ten thousand pesos (P10,000) and
other denominations as may be prescribed by the BS.

(FF)  STATUTORY MINIMUM WAGE EARNER – shall refer to

the rate fixed by the regional tripartite wage and
productivity board, as defined by the BLES and DOLE
(GG)  Minimum wage earner – shall refer to a worker in the
private
sector paid the statutory minimum wage; or to an
employee in the public sector with compensation income
of not more that
the statutory minimum wage in the non-agricultural
sector where he/she is assigned
   So parang kapag sa PRIVATE –  saktong minimum wage lang,
kapag
sa PUBLIC naman pwede mas mababa pa sa

minimum wage END OF SECTION 22

INDIVIDUAL TAXPAYERS

1.   Resident Citizen
2.   Non-Resident
Citizen 3. 
Resident Alien
4.  Non-resident Alien NOT
engaged in t/b 5.  Non-resident
alien engaged in t/b

(1)   RESIDENT CITIZEN

   A citizen of the Philippines residing therein is taxable on all
income derived from sources within and without the
Philippines (SEC 23 A)
   An income tax is hereby imposed: On the taxable income [
SEC 31: TAXABLE INCOME: means the pertinent items of
gross income
 worker is taxable only for income from sources within the Philippines.
specified in this code, less the deductions, if any, authorized for
such types of income by this code or other special laws), other than Prercoeviivdeesd ,coTmhapte na ssaetiaomna fno,r wsehrov iicse sa
under sections B, C, D of section 24 derived for each taxable year rceintidzeerne do fa bthroea Pdh aisli pa pmineems baenrd o fw the
from all sources within and without the Philippines, by every complement vessel engaged exclusively in international trade shall be
individual citizen residing therein (SECTION 24 A 1) treated as an overseas contract worker
   Who are residing Filipino citizens – those who are physically
staying
or present in the Philippines or has an intention to reside her
permanently, or those who are absent but has an intention to
return
   Who are Filipino Citizens?
Section 1. The following are citizens of the Philippines:
[1] Those who are citizens of the Philippines at the time of the
adoption of this Constitution;
[2] Those whose fathers or mothers are citizens of the
Philippines;
[3] Those
electborn beforecitizenship
January 17,upon
1973,reaching
of Filipino
who Philippine themothers,
age of
majority; and
[4] Those who are naturalized in accordance with law.
(ARTICLE IV, SECTION 1 OF THE PHILIPPINE
CONSTITUTION)

(2)   NON-RESIDENT CITIZEN

Section 22 E of the NIRC: NON RESIDENT CITIZEN

o  A citizen of the Philippines who establishes to the
satisfaction of the commissioner the fact of his physical
presence abroad with a definite intention of residing
therein
   Intention must be manifest to reside in
another
country
o  A citizen of the Philippines who leaves the
Philippines during the taxable year to reside abroad,
either as an immigrant or for employment on a
permanent basis
  Those who have VISAs


o  A citizen of the Philippines who works and

derives
income from abroad and whose employment thereat,
requires him to be physically present abroad most of the
time during the taxable year
   OFWs are covered in this case
o  A citizen who has been previously considered as non-
resident citizen and who arrives in the Philippines at any
time during the taxable year to reside permanently in the
Philippines shall likewise be treated as a non-resident
citizen for the taxable year in which he arrives in the
Philippines with respect to his income derived from
sources abroad until the date of arrival in the Philippines
   Does not return yet to Phil – NRC
   Upon return here in Phil – RC
o  The taxpayer shall submit proof to the commissioner to
show his intention of leaving the Philippines to reside
permanently abroad or to return and to reside in the
Philippines as the case may be
o
  Seamen
   Not residing in the phil but he is also not
residing somewhere else, he is not earning
income from the Philippines
o  Those na nagbabakasyon sa ibang bansa are NOT
non-
resident citizens of the Philippines

Section 24 (A) (1) (B): An income tax is imposed on the taxable income
[TAXABLE INCOME: means the pertinent items of gross income specified
in this code, less the deductions, if any, authorized for such types of
income by this code or other special laws, ] other than income subject to
tax under subsections B,C,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 the Philippines including overseas
contract workers including
SEC 23 (C): An individual citizen of the Philippines who is
working and deriving income from abroad as an overseas contract
 SEC 23 (B): A NRC is taxable only on income derived from
sources within the Philippines

(3)  RESIDENT ALIEN

SECTION 22 (F) RESIDENT ALIEN –  an individual whose residence is

within the Philippines and who is not a citizen thereof
SECTION 24 (A)(1)(C): On the taxable income defined in section 31 of
this code, other than income subject to tax under Subsections B,C,D
derived for each taxable year from all sources within the Philippines by
an individual alien who is a resident of the Philippines

Period of time
pagdating residing
palang in pilipinas,
ditto sa the Philippines is not material,
the intention if
is clear and  
manifest to reside, there is no required number of days
   Sec 23 (D): An alien individual, whether a resident or not of
the Philippines is taxable only on income derived from sources
within the Philippines

(4)   NON-RESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS

Section 22 G: NONRESIDENT ALIEN – individual whose residence
is not within the Philippines and who is not a citizen thereof

Section 25 (A)(1): A non-resident alien individual engaged in

trade or business or business in the Philippines shall be subject
to an income tax in the same manner as an individual citizen (RC)
and resident alien individual from all sources within the
Philippines
o  A non-resident alien individual who shall come to the
Philippines and stay therein for an aggregate period of
more than 180 days during any calendar year shall be
deemed a NRAETB

  A citizen of another country, not residing in the Philippines
but engaging in economic or commercial activities in the
Philippines
   T/B: refers to economic or commercial transactions in
the Philippines

(5)   NON-RESIDENT ALIEN NOT ENGAGED IN TRADE OR

BUSINESS
   Citizen of another country, not residing in the Philippines and
who is not entering in economic or commercial transactions in the
Philippines
   Section 25 B: There shall be levied, collected and paid for each
taxable year upon the entire income received from all sources
WITHIN the Philippines by every non-resident alien individual,
not engaged in trade or business within the Philippines
   Sec 22 G: Non-resident alien: means an individual whose residence
is not within the Philippines, and who is not a citizen thereof
   Sec 23 D: An alien individual, whether a resident or not of
the Philippines is taxable only on income derived from sources
within

the Philippines
SUMMARY OF TAXABLE LIABILITIES OF INDIVIDUAL TAXPAYERS

TAXPAYER TAXABLE FROM TAXABLE FROM

SOURCES WITHIN SOURCES WITHOUT
RC YES YES
NRC YES NO
RA YES NO
NRAETB YES NO
NRANETB YES NO

CORPORATE TAXPAYERS
 Domestic Corporation
 Resident – Foreign Corporation
 Non-Resident Foreign Corporation

(1)  DOMESTIC CORPORATION

 Sec 22 (c): means created or organized in the Philippines or under
its laws
   Sec 23 (E): A domestic corporation is taxable on all income derived (A) Gross Income From Sources Within the Philippines. - The following
from sources within and without the Philippines items of gross income shall be treated as gross income from sources
(C)  Sec 27 (A):  Taxable for income, within and without the within the Philippines:
Philippines by every corporartion defined under section 22 B
(1) Interests. - Interests derived from sources within the
[Corporation – includes partnerships, no matter how created
or organizes, joint stock companies, joint accounts, Philippines, and interests on bonds, notes or other interest-
associations, insurance companies, but does NOT include bearing obligation of residents, corporate or otherwise;
General professional partnerships and a joint venture or (2) Dividends. - The amount received as dividends:
consortium formed for the purpose of undertaking (a) from a domestic corporation; and
construction projects projects or engaging in coal, geothermal, (b) from a foreign corporation,  unless less than
and other energy operations pursuant to an agreement under
fifty percent (50%) of the gross income of such
a service contract with the government
o  General Proffesional Partnerships – partnerships formed foreign corporation for the three-year period
by persons for the sole purpose of exercising their ending with the close of its taxable year
preceding the
common profession,
in engaging no part
in any trade of income of which is derived
or business
declaration
such periodof as
suchthe
dividends or for has
corporation such been
part in
of
Organized under laws of the Philippines.
existence) was derived from sources within the
Philippines as determined under the provisions of
Q: WHAT IS A FOREIGN CORPORATION?
 A: Entity incorporated in accordance with any law other than the this Section; but only in an amount which bears the
Philippines or a foreign law same ration to such dividends as the gross income of
the corporation for such period derived from
  RESIDENT FOREIGN CORPORATION
(2) sources within the Philippines bears to its gross
   Section 22 H: RESIDENT FOREIGN CORPORATION –  applies to income from all sources.
a foreign corporation engaged in trade or business within the
(3) Services  - Compensation for labor or personal services
Philippines
performed in the Philippines;
  Sec 23 F: A foreign corporation, whether engaged or not in trade
or business in the Philippines is taxable only on income derived (4) Rentals and Royalties.  - Rentals and royalties from
from sources within the Philippines property located in the Philippines or from any interest in
  Section 28 (A) (1):  A RFC is taxable only from income such property, including rentals or royalties for -
derived (a) The use of or the right or privilege to use in the
within the Philippines Philippines any copyright, patent, design or model,
  It has a branch here in the Philippines, even if principal place plan, secret formula or process, goodwill,
of business is abroad, and such branch here in the phil is the RFC
trademark, trade brand or other like property or
  There is an agent assigned here
  There is hiring of EEs right;
  Principle of habituality (b) The use of, or the right to use in the Philippines
any industrial, commercial or scientific equipment;
(3)   NON-RESIDENT FOREIGN CORPORATION (c) The supply of scientific, technical, industrial or
   Incorporated under foreign laws but is not engaged in trade or commercial knowledge or information;
business within the Philippines (22 I) (d) The supply of any assistance that is ancillary and
   Sec 23 F: A foreign corporation, whether engaged or not in trade subsidiary to, and is furnished as a means of
or business in the Philippines is taxable only on income derived
enabling the application or enjoyment of, any such
from sources within the Philippines
   SECTION 28 (B) (1): Taxable only from all sources WITHIN the property or right as is mentioned in paragraph (a),
Philippines at the rate of 30% any such equipment as is mentioned in paragraph
(b) or any such knowledge or information as is
SUMMARY OF TAX LIABILITIES OF CORPORATE TAX PAYERS mentioned in paragraph (c);
(e) The supply of services by a nonresident person
TAXPAYER TAXABLE FOR TAXABLE FOR or his employee in connection with the use of
SOURCES WITHIN SOURCES WITHOUT property or rights belonging to, or the installation
YES YES NO
DC RFC or operation of any brand, machinery or other
YES NO
NRFC
YES apparatus purchased from such nonresident person;
(f) Technical advice, assistance or services rendered
in connection with technical management or
NOTE: Under section 25 (C) (D) & (E) There are “special aliens” administration of any scientific, industrial or
1.  Alien individual employed by regional or area HQs and ROHQS commercial undertaking, venture, project or
of multinational companies scheme; and
  2.  Alien individual employed by offshore banking units (g) The use of or the right to use:
3.  Alien individual employed by petroleum service contractor
(i) Motion
and subcontractor
picturefilms; (ii) Films or video tapes for
o  They are working in the PHIL, but they are classified as
NRANETB use in connection with television;
o  Their income is taxable as NIT, same rates as provided in and (iii) Tapes for use in connection with
Section 24 (a) radio broadcasting.
(5) Sale of Real Property. - Gains, profits and income from the
Q: HOW DO YOU DETERMINE IS INCOME IS SOURCED WITHIN OT sale of real property located in the Philippines; and
WITHOUT THE PHILIPPINES?
(6) Sale of Personal Property  - Gains; profits and income
 A: You look at Section 42 of NIRC
from the sale of personal property, as determined in

Subsection (E) of this Section.

SEC. 42. Income from Sources Within the Philippines.-
(B) Taxable Income From Sources Within the Philippines. -
 (1) General Rule. - From the items of gross income specified in income may first be computed by deducting the expenses,
Subsection (A) of this Section, there shall be deducted the losses or other deductions apportioned or allocated thereto
expenses, losses and other deductions properly allocated and a ratable part of any expense, loss or other deduction
thereto and a ratable part of expenses, interests, losses and which cannot definitely be allocated to some items or classes
other deductions effectively connected with the business or of gross income; and the portion of such taxable income
trade conducted exclusively within the Philippines which attributable to sources within the Philippines may be
cannot definitely be allocated to some items or class of gross determined by processes or formulas of general
income: Provided, That such items of deductions shall be apportionment prescribed by the Secretary of Finance.
allowed only if fully substantiated by all the information
necessary for its calculation. The remainder, if any, shall be Gains, profits and income from the sale of personal property produced
treated in full as taxable income from sources within the (in whole or in part) by the taxpayer within and sold without the
Philippines. Philippines, or produced (in whole or in part) by the taxpayer without
and sold within
(2) Exception. - No deductions for interest paid or incurred
abroad shall be allowed from the item of gross income
specified in subsection (A) unless indebtedness was actually the Philippines,
partly shallwithout
from sources be treated
the as derived partly from sources within and
Philippines.
incurred to provide funds for use in connection with the
conduct or operation of trade or business in the Philippines. Gains, profits and income derived from the purchase of personal
property within and its sale without the Philippines, or from the
(C) Gross Income From Sources Without the Philippines. - The purchase of personal property without and its sale within the
following items of gross income shall be treated as income from Philippines shall be treated as derived entirely form sources within
sources without the Philippines: the country in which sold: Provided, however, That gain from the
(1) Interests other than those derived from sources within the sale of shares of stock in a domestic corporation shall be treated as
Philippines as provided in derived entirely form sources within the Philippines regardless of
paragraph (1) of Subsection (A) of this Section; where the said shares are sold. The transfer by a nonresident alien
(2) Dividends other than those derived from sources within or a foreign corporation to anyone of any share of stock issued by a
the Philippines as provided in domestic corporation shall not be effected or made in its book
paragraph (2) of Subsection (A) of this Section; unless: (1) the transferor has filed with the Commissioner a bond
(3) Compensation for labor or personal services performed conditioned upon the future payment by him of any income tax that
without the Philippines; may be due on the gains derived from such transfer, or (2) the
(4) Rentals or royalties from property located without the Commissioner has certified that the taxes, if any, imposed in this
Philippines or from any interest in Title and due on the gain realized from such sale or transfer have
such property including rentals or royalties for the use of or been paid. It shall be the duty of the transferor and the corporation
for the privilege of using the shares of which are sold or transferred, to advise the transferee
without the Philippines, patents, copyrights, secret processes of this requirement.
and formulas, goodwill,
trademarks, trade brands, franchises and other like END OF SECTION 42
properties; and
(5) Gains, profits and income from the sale of real property
located without the Philippines.
Q: WHAT DO WE LOOK AT TO DETERMINE IF SOMETHING IS
TAXABLE WITHIN OR WITHOUT?
(D) Taxable Income From Sources Without the Philippines. - From the
items of gross income specified in Subsection (C) of this Section there
INTERESTS Debtor’s POV
shall be deducted the expenses, losses, and other deductions properly DIVIDEND INCOME
apportioned or allocated thereto and a ratable part of any expense, loss
or other deduction which cannot definitely be allocated to some items or Income within From DC


 From
Income within,
 FC or more of the gross income of the foreign company for the past three years was de
if 50%
classes of gross income. The remainder, if any, shall be treated in full as
taxable income from sources without the Philippines.

(D)  Income From Sources Partly Within and Partly Without the
Philippines.- Items of gross income, expenses, losses and
deductions, other than those specified in Subsections (A) and Income without, if less than 50% of
(C) of this Section, shall be allocated or apportioned to sources the gross income of the FC for the past three years was derived from sources within the Philip
within or without the Philippines, under the rules and Location of property Place of use
regulations prescribed by the Secretary of Finance, upon Place of sale
recommendation of the Commissioner. Where items of gross SERVICE INCOME
Rent Income Royalty Income Gain on sale property
income are separately allocated to sources within the
Philippines, there shall be deducted (for the purpose of
of personal
computing the taxable income therefrom) the expenses, losses
and other deductions properly apportioned or allocated Gain on sale on Domestic sharesIncome within
thereto and a ratable part of other expenses, losses or other of stock
deductions which cannot definitely be allocated to some items
Q: WHAT DO YOU MEAN, IT IS TAXABLE PARTLY WITHIN &
or classes of gross income. The remainder, if any, shall be WITHOUT?
included in full as taxable income from sources within the
 A: In this case, ito ata yung hindi pa siya finished product. It needs to be
Philippines. In the case of gross income derived from sources
partly within and partly without the Philippines, the taxable produced or manufactured in a different place, and is sold in another vice
versa. Taxable lang siya in proportion
TAX ON INDIVIDUALS o  Kapag naman ibang taxpayer na, exempt na yan kapag sa
ibang bansa nag preterminate etc, din a yan taxable dito
Q: WHAT ARE THE TYPES OF EARNERS? sa pilipinas kahit di pa niya tinapos yung deposit 
o  If there is pretermination 
 A:    Nasa bank ng less than three years – RATE OF
   Compensation income earners: Those who have an EE- TAX: 20%
ER relationship    Nasa bank ng less than 4 years – 12 %
o  RATE OF TAX: NIT (Net income tax)    Nasa bank ng less than 5: 5%
  The rate of NIT is followed as provided in o  The rationale in this case, is if you lend to the
Section 24 (A) (2) (a)  government hindi ka na nila itatax kaya lilibre ka sa tax
   Self- Employed Individuals kapag di ka nag preterminate ng 5 taon
o  If their gross sales or gross receipts and other non- (2)   Cash or property dividends
operating income does not exceed (3M)    RATE:10% = imposed upon the cash and/or property
  The 3M is the VAT threshold as provided in dividends actually or constructively received by an individual
from a DC or
section 109 BB
o   RATE OF TAX: They have an option to avail (if does not
from a jointHQs
operating stock
of company, insurance
multinational or mutual
companies, fund
or on thecompanies,
share of an
exceed 3M) either NIT (Schedular) or 8% tax on the gross
sales or gross receipts and other non-operating income in individual in the distributable net income after tax of PAT.
excess of 250,000 pesos in accordance with SEC 24 (A)
(2) (a)
o  If more than 3M, The rate of tax is NIT SECTION 24 C: CAPITAL GAINS FROM SALE OF SHARES OF STOCK NOT
   Mixed Income Earner TRADED IN STOCK EXCHANGE
o  All income from compensation: NIT   Rate: 15% fwt from the sale, barter, exchange or other disposition of
o  All income from business or practice or t/p shares of stock in a domestic corporation  except shares sold or
 
 If does not exceed 3M: NIT/8% on the disposed on in SE.
gross sales or receipts and other non- o  Not over 100,000 = 5%
operating income based on the NIT rates o  On any amount in excess of 100,000 = 10%
(scheduler table)   APPLICATION: If listed in the stock exchange, you bought it for
  If exceed the 3M threshold: NIT
 500,000 and the book value is 1 million. You sold it at 100,000
because there is a crash in the stock market 
NOTE: You can only choose and avail of the type of tax you pay once a o  ANONG RATE? SECTION 127 APPLIES: Kasi listed siya sa
year, if you do not choose, default NIT na talaga siya stock market, tsaka wala namna kasing donative intent
o  Rate under section 127 (A) 6/10 of 1% of the gross
selling price
SECTION 24 
  What if it is not listed in the SE? Binenta mo ng maayos na price?
RATES IN SECTION 24 APPLIES 
(A)   Rates on income tax on individual citizens and individual    What if NOT listed in SE? Hindi mo binenta ng maayos. May donative
resident aliens of the Philippines intent. Bayad ka ng donor’s tax under section 100
o  SECTION 100: When personal property is transferred for
(1)   Income tax of RC: All income from WITHIN and without the less than full consideration in money/money’s worth kung
Philippines, taxable as income under A. If will fall under purely magkano nalugi mo yun ang mag impose ng donor’s tax
compensation or “others”, tsaka kapag wala sa B,C & D. So sa B,    Rate: 6%
kapag yung source is foreign, dito nay an sa A. Kapag Sa C    What if listed in SE and binenta mo ng maayos na price? 6/10 of
naman, kapag listed in SE, dito na din yan sa A. Kapag sale of 1% pa din
ORDINARY assets, or assets na OUTSIDE the Philippines, A na    39 (B): In the case of a taxpayer, other than a corporartion, only
din yan mahuhulog the following percentages of the gain or loss recognized upon the
(2)   Income tax of NRC: All income WITHIN the Philippines lang ang sale or exchange of capital asset shall be taken into account in
taxable, if it is without. It’s no longer taxable. computing: net capital gain, net capital loss and net income 
(3)   Income tax of RA: All income WITHIN the Philippines lang ang o  100% if capital asset has been held for not more than 12
taxable in this case. Kapag wala din sa B,C,D dito nay an sa A months
mahuhulog o  50% if capital has been held for more than 12 months

SECTION 24 (B) – Rate of Tax on certain Passive Income

Ang tawag sa type of tax na ito is FINAL WITHHOLDING TAX  AQ: WOrHdAinTa AryR aEn TdH CEa TpYiYitPalEl S OF ASSETS
   Ordinary – assets used by the taxpayer in business 
(1)   Interests, Royalties, Prizes and Other winnings    Capital – not used in t/b
   Interests : 20% - PESO currency
   Interest: 15% = FOREIGN CURRENCY SECTION 39 (A) (1): The term “capital assets” means property held by
o    Xpn: Non-resident individual the taxpayer, whether or not connected with his trade or business but
   Royalties –  20 % does not include
o    XPN: books, literary works, other musical
compositions: 10 % RATE FWT (1)   Stock in trade of taxpayer or other property of a kind which
   Prizes: if less than 10,000 pesos = NIT rates would properly be included in the inventory if on hand at the
o  If more than 10,000: RATE: 20-% close of the taxable year
   Winnings from PCSO/Lotto (2)   Property held by the taxpayer primarily for the sale to
o  If less than 10k; exempt customers in the ordinary course of his trade or business
o  If more than 10k: 20% fwt (3)   Property used in the trade or business of a character which is
   Interest income from long term deposit or investment in the form of subjected to allowance for
savings etc: EXEMPTED if at least five years and no pretermination  depreciation (4)  Real property used in t/b
o  We are Only talking about banks in the Philippines, by taxpayer
kapag RC/DC since taxable siya worldwide, ang tax kapag
sa ibang bansa yung preterminate etc NIT na. SECTION 24 (D): capital gains from sale of real property

  Section 6 e: it is the commissioner who prescribes the rates
   Under here, either a final tax of 6% gross selling price or current
market value, whichever is higher
   It is imposed on capital gains presumed to have been realized from B.   Passive income – taxable din worldwide, kapag galling sa pinas
the sale, exchange or other disposition of real property ang source FWT ang tawag sa tax, pag galling sa ibang bansa,
o  It must be located in the Philippined sa NIT/8% na yung tawag
o  Classified as capital assets [SECTION 39 (A)(1) DEFINES C.   Fwt kapg loob ng pinas, nit kapag galling na sa labas pero again
CAPITAL ASSENTS] rc siya so taxable siya worldwide
   What are included? D.   Real property – kapag capital asset at nasa pinas, fwt kapag sa
o  Pacto de retro ibang bansa, taxable pa din siya pero others na or nit
o  Other forms of conditional sales
o  Estates and trusts (2)   If NRC
   Tax liability on gains from sales or other dispositions of
real property to the government, or any of its political subdivisions  A.    All income derived from the sources outside the Philippines are
or GOCCS not taxable in this case, but all income from Philippines are
o  This talks about forced sales  taxable. This letter a talks about compensation income, income
o  You have a chouce, CGIT na 6% or NIT under section 24  from t/b or any other income as “others”   na wala sa b,c, d rates
o
Mas beneficial daw kapag NIT kasi kapag wala ka kinita, are yung 3m threshold ekek rules
 
wala ding itatax sayo B.   Interests – 20% if peso 
   Exception regarding the taxability of proceeds from the sale of RP o  Interests- 15% if dollars
o  The capital gains from the sale of residence o  time deposit not preterminated in phil, exempted
   Proceeds = if fully utilized in acquiring o  time deposited not pt in us – no tax
or constructing new principal residence within o  raffle in the Philippines 9,999.99 pesos: nit
18 calendar months from the sale is exempted o  if more than 10,000 pesos fwt 20%
from capital gains tax under this section o  lotto in the phil: exempted if less than 10k, if more than
  Conditions 

10k fwt of 20%
o  lotto in states, raffle – not taxable
o  Historical costs is carried
out o  royalties – distributed in the Philippines, tax: fwt: 20%, if
o  Commissioner is notified literary works, musical compositions: 10%
within 30 days from the o  if royalties distributed in the states- no tax 
date of sale to avail of the    dividends – fc issued to nrc. Is it taxable? Yes, nit. If more than 50%
tax exemption o  if the xpn applies
o  Such tax exemption can   17% within
only be availed of once   83% without
within 10 years o  If issued by dc to nrc, yes it is taxable fwt 10%
   When is the exception partially applicable?
o
 If the proceeds of the sale are not fully utilized, yung C.   SMC issued 300,000 pesos to nrc. The rate is fwt 15% 
sobra shall be subject to CGT. o  but shares of stock from the us are not taxable
  RATE? Gross selling prince or fmv at the time D.   Location of property is the key
of sale, whichever is higher multiplied by a here a. 
fraction of the unutilized amount bearts the Bahay bili pinas: fwt 6% cgt
rate of 6% b.   Bahay nili states no tax
   Note: the exception applies only to the house and not the land
   Application: house is sold at 1.8m. the house was bought at 800,000 (3)   RA
the 1m is left. 1m is taxable  -  Domiciled in another country, all income within the phil,
   Application: co-owners wanted to sell a house and lot, who can taxable
claim exemption? -  Cgt; no exemption because ra cannot own rp in philippines =
o  The one who owns it as his/her actual principal place of this is only the general rule
o  Xpn: Filipino heritage, born in states and maerican
residence, but since it is co-ownership only up to the
extent of my share, will I be exempt from cgt xirizen: inheritance of property in the Philippines
and decided to stay in the philipppines
   Application: Jordan lives in alabang, and works in qc, b works
   This is the actual principal residence, cgt
in alabang and lives in qc. They exchamged their property. Both
may be applied for
should pay cgt
  Seller pays siya kumita eh 
 

 Application: loan secured by a mortgagee 
-  No Filipino heritage, Caucasian, ta decided to buy a condo, can
o
It was foreclosed: no cgt
   Foreclosed apply for cgt exception 
o sale at auction: no cgt
o  Once the redemption period expires (1) year redemption
period, it is only when the cgt attaches because it is only
when there is a transfer of ownership  SECTION 25 Non- resident alien individuals
o   Who pays the cgt? Highest bidder, if redeemed by
additional owner, no cgt. Because cgt is paid only when (a)  NRAETB
there is a transfer of ownership
(1)   GR: NRAETB has the same tax liabilities with rc and ra from
income derived from sources within Philippines
 APPLICATIONS (2)   Cash and or property dividends from dc, joint
stock company, insurance mutual fund, regional headquarters
(1)   If RC  of multinational. Et: 20% rate
   Interests, royalties prizes: fwt 20% 
 A.  Taxable worldwide siya, from all income derived within and    Prizes if amounting to 10,000 or less is nit
without the Philippines, so taxable siya sa sweldo niya, sa    Prizes if amounting to more than 10k is fwt 20%
parlor niya kahit nasaang bansa pa siya, lecture, cocaine (oo    Cinematographic films: 20%
taxable din siya sa cocaine because the law does not    Royalties in books, literary works, musical compositions: 10%
distinguish naman kung legal or illegal), “others” yung tawag    Interest income form long term deposit: same rates lang.
kapag hindi compensation income from ee-er ganon pa din no pretermination dapat before 5 years to be exempted, but again
yung rates as discussed, yung 3M threshold applicable pa din only
sa banks inside phil mag apply yung rules, if outside phil, nakuha
kahit san pa diyan, di na yan taxable
   Capital gains – same rates under sec 24 c & d
 
o C= 15%
   Kapag lugi 
 


 FWT 15% basis: Sec 27 (D) (2)

   Listed = no donative intent 6/10
   Sec 27 D (2): “A final tax at the rate of 15% shall be imposed on net
of 1%
capital gains realized during the taxable year from the sale,
o  Yes donative intent =
exchange or other dispositions of shares of stock in a domestic
donor’s tax = 6%
corporation except shares sold or disposed through the stock
   Not listed = donor’s tax
exchange”
   Kapag sold ng maayos. Listed = 6/10 of 1% 
   Kapag sold ng maayos, not listed 15%
Q: What is the rate if it is on the sale of RP?
o   D = CGT 6% Binenta mo man yan ng lugi or kita, 6% pa
  Sec 27 (D)(5): A final tax of 6% is hereby imposed on the gain
din ang rate. Same rules
presumed to have been realized on the sale, exchange or disposition
of lands and/or buildings which are NOT actually used in the
SECTION 25 (B) NRAENETB
business of the corporation and treated as CAPITAL ASSETS based
  For classifications under A and B of section 24. Tax rate is 25%
on the gross selling price or fair market value as determined with
gross income tax or final tax
Sec 6 (E)

  For c and d of section 24, same rates lang. 15% for c and 6% on D o
  Sec 6 E: Authority of the commissioner to prescribe real
property values
Section 25 c,d & e = SPECIAL ALIENS
   NIT rates na for A and B. no longer given preferential Q: What is the rate of tax if income is received from a foreign corporation?
treatment A: NIT 30% SEC 27 (A).
o  Same concept lang sila sa individuals, kapag wala sa B,C,D
nasa A.
o  Kapag received from a foreign corporation or
an individual, taxable siya under NIT @ 30% and the
legal basis is section 27 A.

Q: What is MCIT?
SECTION 26 Tax Liability of Members of General Professional A: Sec 27 (E) (1)” A minimum corporate income tax of two percent of the
Partnerships gross income as of the end of the taxable year, as defined herein, is
hereby imposed on a corporation taxable under this title, beginning on
   A general professional partnership as such shall NOT be subject to the fourth taxable year immediately following the year in which such
income tax under this chapter corporation commenced in business operations, when the minimum
  So a GPP is NOT subject to income tax

income tax is greater than the tax computed under subsection A for the
  Are they exempted from liabilities? NO.
 taxable year”
  
Ppaertsnoenrs henipg asghiianllg b ien lbiaubslien efosrs iansc Q: What is IAET?
opmaretn tearxs o inl ya igne tnheeriarl s perpoafreastsei oanadl  A Improperly accumulated tax
individual capacities
   How do you c ompute the distributive share of partners?
o  Net income of PAT shall be computed in the same MINIMUM CORPORATE INCOME TAX
manner as a corporation
o  So other partnerships are taxable The corporation is TAPSILUGAN XYZ
o  Only general professional Partnerships are EXEMPT
from tax First what is GROSS INCOME?
o  Each partner shall report as gross income his distributive   Under Section 27 (E)(4): Gross income shall mean gross sales


share, actually or constructively received in the net less

income of the partnership. sales returns, discounts and allowances and costs of goods sold

So, illustrate natin yung income ni Tapsilugan

ATTY. LUMBERA’S DISCUSSION ON CORPORATIONS  Q: If a 2019 2020

2,000,000 x 30% =
corporation 600,000
sells a capital 20 million (Ito ang 9.5 is the gross income
WITHIN WITHOUT
asset not kinita mo) The 600,000 goes to
DOMESTIC TAXABLE TAXABLE
listed, what is 6m.8gaM wshwicehl
CORPORATION the rate? 1p2u hmunilalino
RESIDENT FOREIGN TAXABLE NOT TAXABLE dios yung empleyado
mo, costs
CORPORATION nm o(i)to ang
NON-RESIDENT TAXABLE NOT TAXABLE 9.5-6.8 = 2.7M
FOREIGN CORPORATION 20M-12M = 8M
[Revenue –  Capital 2.7M x 30%NIT =
810,000
= gross income]

   When the principal place of business is OUTSIDE the Philippines, at So 8M is now your
2.7-810,000 = 1.89M

merong branch dito sa Pilipinas = RFC YAN (Resident Foreign gross income 810,000 goes to the
Corporation) government, and you
From the gross
   When the principal place of business is outside the Philippines, and income, you deduct
keep the 1.89M.

there is no branch here in the Philippines pero kumikita pa din = the costs, yung mga
NON-RESIDENT FOREIGN CORPORATION sweldo ng
   What is the rate kapag long-term deposit? THE RATE IS 20% FWT empleyado etc

   Ang rate naman sa royalties is 10% pero wala silang literary Yung mga costs
or musical rates kasi hindi naman sila pwede maging composers mo, assuming
umabot ng 6M
WHAT ARE INTERCORPORATE DIVIDENDS?
8M – 6M = 2M

  Sec 27 (D) (4) : Dividends received by a domestic corporation from
another domestic corporation are NOT subject to tax Yung 2M ito na yung
itatax mo for NIT
30%
2021 2022

10 M is the gross income In this example,

ilagay natin both
yung mangyayari
9m.6ga is yunge mswpeleldyoad nog, costs kung lugi and kita

10M-9.6M = 400,000 12 M is the  gross

income  –  11.7
400,000 x 30%NIT costs, sweldo ng
[this is under Subsection A of section 27] = 120,000 employee

400,000 – 120,000 = = 300,000 [Taxable

280,000 net income]

300,000 x 30%NIT=
The 120,000 goes to the government and the 280,000 you get to keep
90,000 

So if you apply
MCIT, kasi nasa
fourth year na
from existence ng
corporation. So
dito sa fourth year,
the government
has a choice.

They can tax on the

taxable net income
of 300,000

30%
thereof, or they can

toanx theth ec
orpoGrRatOioSnS
INCOME

What if they
choose to tax on
the gross
the government income? Paano naman ang rules ng resident foreign corporation?
So 2M- 600,000 = Ganito itsura niyan:
  The principal branch is in the USA, but there is a branch here in the
1.4M Philippines, only the branch here in the Philippines is TAXABLE
12M X 2% [MCIT] = o  Wala silang classification regarding real property kasi
Yung 1.4 M sayo nay240,000
un
they cannot own real property anyway
So pipiliin ng government MCIT siyempre na 240,000 ito yung mas malaki eh.Yun   Paano yung lipat and taxability ng dividends?
o  Kapag DC – DC: Exempt 
o  Kapag DC – RFC: Exempt din
din   They are also subject to MCIT, but it is only the Philippine branch
nakalagay sa which is subjected to the MCIT
provision.
  Paano naman gagawin yung IAET nila?
o  From the net income of the RFC if the retained earnings
What if in 2022, iba naging kwento ng income?
are NOT given away to the stockholders, it is NOT subject
to the IAET
   12M is your gross income –  13.8M is your costs, sweldo =
-1.8M yung sagot, lugi ka naman sa case na ito. 
  But if they give the retained earnings to their
stockholders, the SH receive them as
   Paano taxability ng government? Ganon pa din DIVIDENDS
o  - 1.8M x 30% = 0 NIT, walang matatax yan sa NIT o   So ano mangyayari? Ang ginagawa kasi ng RFC, ireremit
kasi wala naman yang kinita eh. nila sa principal branch nila yung kinita ng RFC sa
o  So paano kikita gobyerno dito? principal branch sa ibang bansa
o  Mag tax pa din sila ng MCIT on the gross sa 12M o   What are BPR? Under section 28 A(5): Branch profit
o  So 12 M x 2% = 240,000 yan ang kukunin nilang tax so remittances is any profit remitted by a branch to its head
kahit wala ng kita yung company, pwede pa din sila mag office shall be subject to tax of 15% which shall be based
MCIT. Kita or lugi, MCIT pa rin on the total profits applied or earmarked for remittance
   Kailan ba nangyayari tong MCIT Na ito? It begins from the 4 th  without any deduction for the tax component thereof
year (EXCEPT: Those activities which are registered with
from commencement of existence hanggang nagooperate na siya, Philippine economic zone authority)
may karapatan na gobyerno mamili kung MCIT or NIIT, pero pinipili    Tax shall be paid under section 57& 58 of this
lang ang MCIT kapag mas mataas ang MCIT kaysa sa NIT code
IMRPOPERLY ACCUMULATED INCOME TAX

   The improperly accumulated earnings tax imposed in the   Ano ba yung laman ng section 57? &
preceding section shall apply to every corporation formed or 58?
availed for the purpose of avoiding the income tax with respect to   Pero yung interests, dividends, rents, royalties


its shareholders including remuneration of technical services,

or the share holders of any other corporation by permitting salaries, wages, premiums, annuities,
earnings and profits to accumulate instead of being divided or emoluments or other fixed or determinable
distributed [Basis: Sec 29 B (1)]  annual, periodic & casual gains, profits, income
   Who are exempted from IAET? [Basis: Section 30 B (2)] and capital gains received by a FOREIGN
o  Publicly held-corporations [gobyerno to, corporation from all sources taxable WITHIN
including GOCCs] the Philippines shall NOT be treated as branch
o  Banks and other non-bank financial intermediaries and profit remittances UNLESS the same are
o  Insurance companies [if all risks are insured against, effectively connected with the conduct of its
benefits din kailangan may pondo ito]  trade or business in the Philippines
  They are required to retain earning because of
    So ganito ang application:
the nature of the business that they have o  Kapag di niremit, magbebenefit ang gobyerno
o  Pag nag remit palabas sa ibang bansa sa principal place
   Ito application niyan si XYZ (Domestic corporation) of business from the RFC itatax ka ng 15% doon sa pag
with stockholders remit ditto sa pilipinas pero sa USA kailangan ka din itax
ng hindi bababa sa 15%
o   Revenues [ito yung mga kinita mo] –  Costs of   Ano mangyayari kapag below 15% ang tinax ng


sales[ito yung puhunan mo] = gross income USA?

o   Gross income –  deductions [ito na yung mga sweldo WITHHOLDING TAX 10% under section 24 (B)
ng empleyado, discounts, returns] = Net income

o   From the net income, pwede ito hatiin sa retained

earnings and surplus

 
Surplus: amount of money or assets invested


in the company by shareholders

  Retained earnings: profits made by the


corporation that has NOT yet been paid to its

shareholders
o  Kapag si XYZ corporation nagdamot, ayaw niya ibigay sa
stockholders niya yung yung retained earnings [kasi
share dapat yun ng stockholders], ITATAX NGAYON NG
GOBYERNO yung ayaw mo ibigay sa stockholders
  Halimbawa 10M yung retained earnings, hindi


pinamigay magiging IAET na yan. So 10% on

the 10M ang rate
o  Ano mangyayari naman kapag pinamigay niya sa

sntioycak, haonlgd etrasw? aKga pnag d poionna

mDiIgVaIyD nEaN DniSy, as osa ysutnocgk rhaotled
enrgs domestic corporation sa dividends is = FINAL
    Ang remedy ng gobyerno, since

aByPaRw n gn i3la0 %m HadINayDaI NitaAt a1x5 %na L AniNlaG ng

o  Hanggang sa nasa pilipinas ang kinikita ng
RFC at ayaw niya iremit yun, 30% ng 30%
every year ang tax sa BPR

NON-RESIDENT FOREIGN CORPORATION

  Ang NRFC walang branch sa pilipinas, nasa ibang
bansa ang principal place of business pero kumikita pa
din ditto sa pilipinas
  For A & B, Income and Passive income the rate is GIT 30%
  Kapag under C naman FWT, Kapag under D wala, kasi
bawal din sila mag own ng real property dito sa pilipinas
  Ano naman ang rate sa intercorporate dividends?
o  DOMESTIC –  NON-RESIDENT FOREIGN
CORPORATION: FWT 15%
  Meron ba silang IAET & BPRT? WALA. Wala na nga
silang branch ditto sa pilipinas eh.

Section 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”
o  Anong ibig sabihin ng “as such na yan” if the income was
derived from income coming from the main
purpose for
 which the corporation under this enumeration is created, whether real or personal, regardless of disposition
HINDI SIYA SUBJECT TO TAX [meaning regardless saan ginamit] they are NOT exempt
   This is the enumeration from taxation
o  (A) Labor, agricultural or horticultural organization not
organized principally for profit
o  (B) Mutual savings bank NOT having a capital
stock
represented by shares, and cooperative bank without
capital stock organized and operated for mutual
purposes and without profit
o  (C) A beneficiary society, order or association operating
for the exclusive benefit of the members such as a
fraternal organization operating under the lodge system,
or a mutual aid organization by ees providing for the
payment of life, sickness, accident or other benefits
exclusively to the members of such society, order, or
association, or non-stock corporation or their
dependends;
o   (D) Cemetery, company owned and operated exclusively
for the benefit of its members
o   (E) Non-stock corporation or association organized and
operated exclusively for religious, charitable, scientific,
athletic or cultural purposes, or for the rehabilitation of
veterans, no part of its net income or asset shall belong to
or inure to the benefit of any member, organizer, officer
or any specific corporation
o   (F) business league, chamber of commerce or board
of
trade, not organized for profit and no part of the net
income which inures to the benefit of any private
stockholder or individual
o  (G) Civic league or organization not organized for
profit
but operated exclusively for the promotion of social
welfare
o  (H) A non-stock, non-profit educational institution
o
  (I) A government educational institution
o   (J) Farmers’ or other mutual typhoon or fire insurance
company, mutual ditch or irrigation company, mutual or
cooperative telephone company, or like organization of
purely local character, the income of which consists
solely of assessments, dues and fees collected from
members for the sole purpose of meeting its expenses
o   (K) Farmers, fruit growers or like association and
operated as sales agent for the purpose of marketing the
products of its members and turning back to them
proceeds of sales, less the necessary selling expenses on
the basis of the quantity of produce finished by them
o   Notwithstanding the provisions in the preceding
  paragraphs, the income of whatever kind and character of
the foregoing organizations from any of their properties
REAL or PERSONAL or from any of their activities
conducted for profit, regardless of the disposition made of
such income shall be subject to tax imposed under this
code

DISCUSSION OF ATTY LUMBERA:

  Yung mga nasa enumeration na domestic corporations nay an
  They were all made for non-stock, non-profit purposes iba iba ang
primary purpose nakalagay naman sa enumeration yung primary
purpose eh
  INCORPORATION
o  Stock –  lahat ng kita dividends, meaning
may stockholders and merong board of directors
o  Non-stock – no dividends because all income is with the
corporation, hindi napupunta sa particular na tao [sa
stock kasi napupunta sa particular na tao] wala din itong
stockholders, BOARD OF TRUSTEES lang ang meron
  The nature of the corporation is for the benefit of members or the
benefit of others
  So, saan sa lahat ng kinikita nila? Saan sila libre?
o  Doon yan sa mahuhulog sa “as such” – income for which
each primary purpose was created, ito ang libre sa buwis
under column A sa income tax nila

  Yung last paragraph ng section 30 yung “Notwithstanding….”
o  Ibig sabihin non, lahat ng kinita nila mula sa property nila
 APPLICATION OF SECTION 30

   Charitable institutions, churches, convents, mosques – All their

LBI= Land, buildings and improvements, ADE [Actually, Directly
and exclusively used] for CRE [Charitable, religious, educational
purposes] are exempt from REAL PROPERTY TAXES
o   SECTION 28 (3) Charitable institutions, churches and parsonages
or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements,
actually, directly, and exclusively used for religious, charitable,
or educational purposes shall be exempt from taxation. 
   Under section 30 (E) naman of the NIRC, Lahat ng
kinita ng charitable institutions walang tax in pursuant to the
purpose na kinita nila

  Under the last paragraph of section 30, doon naman sila
PWEDE maging taxable

BUILDING
   How do you know muna that is is NON-STOCK/NON-
Jollibee
PROFIT
BUILDING
EDUCATIONAL INSTITUTION? Tignan mo yung articles of Mcdo
incorporation, kapag may stock holders for profit
o  FOR PROFIT & FOR STOCK = May board of directors
o  NON-STOCK & NON-PROFIT = WALANG BOARD HOME FOR THE AGED
OF DIRECTORS WALANG DIVIDENDS
   From the drawing, which is e xempted from REAL PROPERTY TAX? KFC
o  Under section 28 (3) ng constitution, all Lands, May milktea pa ditto Parking lot
Buildings and improvements, actually directly and
exclusively used for charitable, religious and
educational purposes are exempt from RPT
o  So lahat ng nasa drawing exempted, except si MCDO, KFC
Jollibee kasi di naman sila ADE, CRE, HENCE TAXABLE
SILA UNDER RPT
   Isa bang basis ng exemption ng NSNP is under Section 234 of the
Lgc
   SEC. 234. Exemptions from Real Property Tax. - The following
are exempted from payment of the real property tax:chanrobles
virtual law library
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, nonprofit or religious cemeteries
and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or -
controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R. A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection. Except as provided herein, any exemption
from payment of real property tax previously granted to, or presently
enjoyed by, all persons, whether natural or juridical, including all
government-owned or -controlled corporations are hereby withdrawn
upon the effectivity of this Code.

  Home for the aged made Christmas cards, binenta nila ito. Paano naman ang rules paggdating na asa
income?
Kumita sila ng 3 million.
o  Is it income? YES.
o  Is it without or within? It is income WITHIN
 o  
Is it subject to income Tax? corporation, institution, accredited non-
   NO. It is not. government organization, trust or philantrophic
   Why? Kasi doon siya mahuhulog sa “as organization or research
such” because the income was realized for the
principal purpose for which the organization
or corporation was made, HENCE. Exempted
  Yuung home for the aged, tumanggap ng rentals amounting to
500,000
o  Is it income within? YES
o  Is it taxable? YES
   What is the basis? Last paragraph of section
30 
 
 “Notwithstanding….
o  The point is, lahat
ng kinita nila from their
real
property or personal
property, or any activity
for profit so long as di na
in pursuant to the
primary purpose created
is subject to income tax 
o  WHAT IS THE TAX DUE? NIT, 30% Yung rate na ng
domestic corporations
  What about bank deposit: 3.5 M, kumita ng 2,000 sa interest. This is
income. Is it income within? Yes.
o  Is it taxable? YES. It is taxable
o  What is the rate? FWT. 20% It is classified at passive
income, ang rate ng DC for passive income is 20%
o  Why is it taxable? Again, HINDI NAMAN ITO INCOME
FOR THE PRIMARY PURPOSE FOR WHICH THEY WERE
CREATED, so doon sila sa last paragraph ng section 30
mahuhulog – Hence, they are taxable
  Yung 500,000 na kinita sa renta tsaka yung 2,000 pesos na kinita sa
passive income kahit na gamiting para pinturahan yung home for
the aged are NOT exempt from tax  
o  Sabi kasi sa section 30, REGARDLESS of disposition…. So
kahit saan pa niya gamitin, basta kinita niya NOT for the
principal purpose for which it was created hindi yan
exempted from tax
o  Yung renta ba may connection bay un sa principal
purpose ng home for the aged? Hindi diba? Kahit yung
interests, walang kinalaman sa principal purpose

NEXT SITUATION
  X gave 1m for the home for the aged as a gift
o  From the point of view of the home for the aged, this is
INCOME
  Is it taxable? WELL, It is actually a GIFT, so
it does not fall under “as such” it falls under
the realm of donations
  So dito, it is income from the point of view of
the receiver but there is NO INCOME TAX
  Tignan muna natin yung relevant provisions
o  Under Section 32 (B)(3)
  Gifts, bequests and devises: The value of
property acquired by gift, bequest, devise or
descent: provided however, that income from
such property, as well as gift, bequest, devise,
descent of income from any property, in cases
of transfers of divided interest shall be
included in gross income
o  Under section 99 DONORS TAX 
 
 (A) The tax for each calendar year shall be six
percent computed on the basis of the total gifts
in excess of 250,000 pesos exempt gift made
during the calendar year  
o  Under section 101 EXEMPTION ON CERTAIN GIFTS
 
 (A) Gifts made to or for the use of the
National Government of any entity created by
any of its agencies which is not conducted for
profit or to any political subdivision of the
government
  
(cBha)ritGaibftlse rienl igfiaovuosr, cuolft
ureadlu ocra tsi onciaall wanedlf/aorer
 istiutuion or organization,  provided, o   Yung pamisa ni simbahan, kumita ng 3M
however that not more than 30% of said gifts   Taxable? YES.


shall be used by such done for

administration purposes.
   Ano ba yung administration
purposes na pinaguusapan diyan?
o  Yan yung ginamit mo
ng pasweldo, bayad
ilaw, bayad tao,
kuryente lahat
o  So kapag di mo ginamit
for

administration purposes
yan
   So pag sakto sa 30% exempted
pa din
o
  Under section 87 (Donor’s Tax)
 (D) All bequests, devises, legacies or transfers  
to social welfare, cultural and charitable
institutions, no part of the net income of
which inures to the benefit of any individual,
provided that not more than 30% of said
bequests, devises legacies or transfers shall
be used by such institutions for
administration purposes
   So ayan na lahat ng relevant provisions, ganito mo siya iaapply.
o  Yung 1M na binigay ni EX, Gift yun eh. So hindi taxable
yung tumanggap ang itatax is yung NAGBIGAY. Si X.
o  So X is Generally not subject to tax. However, kapag
ginamit yung more than 30% doon sa pagbayad ng
administration fees TAXABLE NA.
   If it was a donation inter vivos
[donation habang buhay pa si X] the
taxability will be based on Donor’s tax
under section: 99&101
   Kapag di naman ginamit yung more than
30%
for admin fees, EXEMPT
o  So what is 30% of 1M, it is 300,000. So kapag lumampas
ka sa 300,000 pesos sa administration purposes
TAXABLE NA for 6% computed based on the total gifts
in excess of 250,000 [this is applicable in donation inter
vivos]
o  Paano naman kapag MORTIS CAUSA donation?
Yung provisions ng ESTATE TAX NAMAN ANG
IAAPPLY.
   Hence, doon sa 1m, if not more than 30%
was used for admin purpose. NOT
TAXABLE 
   If more than 30% of the 1m was used
for admin purposes, TAXABLE na siya
  So in the foregoing, ano ang remedy ni DONOR para hindi
nalang siya magbayad ng tax? Kasi siya na nga nagbigay, siya pa
din itatax?
o  REVOKE THE DONATION

Religious organization

PARSONAGE

MCDO
KFC

JOLLIBEEParking lot Office

MILKTEA

   So diyan sa drawing, ang religious organization is exempted

REAL PROPERTY TAX, so long as the LBI are ADE used FOR CRE
purposes
o  BASIS: Section 28 (3) of 1987 constitution
o  So yung mcdo, kfc, Jollibee and milktea, di yan
exempted from RPT
   What if kumita ang simbahan [lahat pala ng religion, organized as
a domestic corporation]
   Subject to tax, NO. Basis: section 30
 


 RPT
because income “as such”- again, meaning it
was made for the primary purpose for which
  TCD
it was created    Revenues and assets are exempted: THIS
IS CONSTITUTIONALLY GUARANTEED pero
o   Yung rentals na kinita ng simbahan sa mga pinarentahan
sa
niya?
religious, charitable institutions, it is only NIRC
  Is it subject to tax? YES.
guaranteed
  Doon naman mahuhulog sa
   So halimbawa, UST is a NSNPEIT: may parking lot, may garden, may
last paragraph ng section 30, na
carpark na andoon business establishments like mcdo, etc etc
lahat ng kita from property, real or
o  So, first under RPT ano lang ang exempted?
personal or any activity for profit na
LAHAT naman exempted ang HINDI lang is yung laman
was NOT from the primary purpose
ng carpark, hindi naman kasi siya ADE for educational
for which it was created is subjected
purposes, kaya kailangan pa din niya magbayad ng tax
to INCOME TAX regardless of
o  If RPT & Not ADE taxable, pero if yung INCOME is ginamit
disposition na sa ADE for educational purposes, The income is THUS
o  RATE? 30% NIT, DC
rate EXEMPTED 
kais nga DC ang 
  Ito kasi yung ginaguarantee ng constitution
classification ng religious    So medyo may conflict between section 30
organization tsaka yung constitution, so regarding this
o   What about on interests? IS IT TAXABLE? siyempre constitution is the supreme law of
  Yes the land, so the constitution governs
  What is the rate? FWT OF 20% = yun ang    Kaya ganyan na siya nireconcile: Kapag RPT
rate ng domestic corporation sa interests eh tapos ADE, taxable pero kapag ginamit yung
income na yun for ADE educational purposes,
   Si father nagpabless ng kotse, aabutan mo si father sa sobrang YUN EXEMPTED na ang income!!!!!!! 
daming kotse na binless niya umabot ng 150,000 pesos    So halimbawa si UST kumita ng tuition fee na 30M, tapos kumita ng
o  Is this income? YES rental income na 5M
o  Is it taxable? YES o  Yung 30M na tuition fee, exempt din under sec 30 (H)
  He realized income in the exercise of pati under the constitution kasi income ito as such, again
his profession, this is a consideration hence, if meaning for the PRIMARY PURPOSE yung kinita niya for
it does not exceed 3M annually, may choice si which it was created
father kung 8% or NIT o  Yung 5M na rental income, Hindi exempt under section 30
  If more than 3M, default NIT na
 Last paragraph pero exempt under the constitution 
If X gave a gift amounting to 1m to the religious institution    So under section 30, Last paragraph NIT 30%

 
o  It is generally exempted However, in constitution it is NOT the source,

 
  If Donation inter vivos: Exempted

it is the USE. So yung 5M na rental income
kapag
under section 101 (2) = DONOR’S TAX
ginamit siya for purposes na ADE used for
  If donation mortis causa: exempted
educational purposes, WALA NA TAX. Pero
under section 87 (D) = ESTATE TAX
kapag hindi, eh di ayun taxable pa din
o  When is it not exempted?
  It is not exempted if more than 30% was

   This is best illustrated in DLSU VS CIR
used for administration purposes
  Hence, if ginamit yung more than 30% of the


gift for administration purposes, TAXABLE COMMISSIONER OF INTERNAL REVENUE, vs. DE LA SALLE
  If Intervivos, taxable under donor’s
 UNIVERSITY, INC. 
tax
  If mortis causa, taxable under estate

G.R. No. 196596, November 09, 2016
tax

NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS

  Under ART 14, Sect 24 (3)
The Commissioner submits the following arguments:
ively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provide

h exemptions subject to the limitations provided by law including restrictions on dividends and provisions for reinvestment.

y, directly, and exclusively for educational purposes shall be exempt from tax

o   all revenues and assets, including land, building and DLSU's rental income is taxable regardless of how such income is
improvements, ADE used for educational purposed are derived, used or disposed of. DLSU's operations of canteens and
EXEMPTED from taxes bookstores within its campus even though exclusively serving the
  WHAT DOES IT COVER? university community do not negate income tax
  Internal revenue Taxes

liability.
Article XIV, Section 4 (3) of the Constitution and Section 30 (H) of the Tax
Code

“the income of whatever kind and character of [a non-stock

and non-profit educational institution] from any of [its] properties, real
or personal, or from any of (its] activities conducted for profit
regardless of the disposition made of such income, shall be subject to tax
imposed by this

Code.”

The Commissioner posits that a tax-exempt organization like DLSU

is exempt only from property tax  but not from income tax on the
rentals earned from property. Thus, DLSU's income from the leases of
its real properties is not exempt from taxation even if the income
would be used for educational
41
purposes.  
 DLSU stresses that Article XIV, Section 4 (3) of the Constitution
WHAT ARE THE RULES IF IT IS A PROPRIETARY EDUCATIONAL
is clear that all assets and revenues of non-stock, non-profit educational INSTITUTION AND HOSPITALS
institutions used actually, directly and exclusively for educational
purposes are exempt from taxes and duties.    The rules on RPT is the same, the exception falls under SEC 234 of
LGC, as long as the LBI are ADE educational purposes, TAX EXEMPT
on RPT; No constitutional guaranty in this case
ISSUE: Whether DLSU's income and revenues proved to    Under Section 27 (B) Proprietary Educational institutions
have been used actually, directly and exclusively for educational and hospitals which are NON-PROFIT shall pay a tax of 10% on
purposes are exempt from duties and taxes.  their taxable income
o  EXCEPT those covered under subsection D 
  Section 27 (D) Rate of tax from certain
passive income
RULING: YES.   
Interest deposits, monetary benefit
from deposit substitutes and from
The requisites for availing the tax exemption
trust funds and similar
under Article XIV, Section 4 (3), namely: (1) the taxpayer falls under
arrangements and royalties shall be
the classification non-stock, non-profit educational institution; and taxed at 20% FWT is hereby
(2) the income it seeks to be exempted from taxation is used actually, imposed upon the amount on
directly and exclusively for educational purposes. interest on currency bank, deposit
and yield or any other monetary
A plain reading of the Constitution would show that Article
benefit from deposit substitutes and
XIV, Section 4 (3) does not require that the revenues and income must
from trust funds, similar
have also been sourced from educational activities or activities related to
arrangements received by
the purposes of an educational institution. The phrase all revenues is
DOMESTIC corporations and
unqualified by any reference to the source of revenues. Thus, so long as
royalties derived within the
the revenues and income are used actually, directly and exclusively for
Philippines
educational purposes, then said revenues and income shall be exempt
o  So kapag galling sa
from taxes and duties.
foreign corporation, NIT
tax 30% rate on DC
Thus, when a non-stock, non-profit educational institution    That interest income derived from a
proves that it uses its revenues actually, directly, and exclusively for
domestic corporation from a
educational purposes, it shall be exempted from income tax, VAT, and
depository bank under the
LBT. On the other hand, when it also shows that it uses its assets in the
expanded foreign currency deposit
form of real property for educational purposes, it shall be exempted from
system shall be subject to a final
RPT.
income tax at the rate of 15%
o  So kapag rate of interest,
We further declare that the last paragraph of Section 30 of the
20%FWT kapag galling
Tax Code is without force and effect for being contrary to the
domestic amd kapag
Constitution insofar as it subjects to tax the income and revenues of non-
peso 
stock, non- profit educational institutions used actually, directly and
o  Kapag foreign currency
exclusively for educational purpose. We make this declaration in the
15%
exercise of and consistent with our duty to uphold the primacy of the
Constitution. We stress that our holding here pertains only to non-stock,
o   Provided, that if the gross income from unrelated trade,
non-profit educational institutions and does not cover the other exempt business or other activity EXCEEDS 50% of the total
organizations under Section 30 of the Tax Code. gross income derived by such educational institutions or
hospitals from all SOURCES the tax prescribed under
For all these reasons, we hold that the income and SUBSECTION (A) [meaning 30% NIT na ang tax] shall be
revenues of DLSU proven to have been used actually, directly and imposed on the ENTIRE TAXABLE INCOME 
exclusively for educational purposes are exempt from duties and    This means that the GR is 10% lang ang itatax,
taxes. pero ang rate ng passive income subsection D
ang susundin so yung mga royalties, interests
mo FWT 20% kapag galling sa DC, kapag
galling sa foreign corporation naman NIT 30%
   So in this case, the income na kinita ng DLSU from the parking fees    Tapos, diba may total income ka yearly?
were exempted from tax because they were used ADE for KAPAG yung kinita mo sa total income mo,
educational purposes yung lagpas 50% ng income na yun galling sa
unrelated trade, business or activity, NIT 30%
na ang rate ng tax mo
o   “Unrelated trade, business or other activity” means any
UST IS A PROPRIETARY EDUCATIONAL INSTITUTION trade, business or other activity, the conduct of which is
not substantially related to the exercise of performance
   Hence, it may likewise be exempted by such educational institution or hospital of its pimary
   You are not generally exempted, only if there is a law exempting you purpose or function.
from paying tax o
“ proprietary educational institution” –  is any
  private school maintained and administered by
   NSNPEI are exempted under Section 30 (H)
private
individuals or groups with an issued permit to operate
 from the DEPED, DECS, CHED or TESDA as the case may
be, in accordance with existing laws and regulations 
   Ust being a PEI, yung income niya is not covered by SEC 30, It is
covered under Section 27 (B)
   UST as a proprietary educational institution, kumita siya ng 30 M
CASE: Comm. Of Internal Revenue vs. St. Luke’s Medical Center, Inc.
for tuition fee and 5M for rental 
(G.R. No. 195909-195960; Sept. 26, 2012)
o   Classify natin. Yung 30m for tuition fee, RELATED. Yung
5M UNRELATED
Facts: St. Luke’s (respondent) is a hospital organized as a non -stock and
o   Magkano total income? 35M ang total income ni UST
non-profit organization. Sometime in 2002, BIR assessed St. Luke’s
   Ano ang 50% ng 35M? = 17.5M
deficiency taxes amounting to P76M for 1998 which was subsequently
   If income from unrelated trade or business
reduced to P63M during trial in the CTA. St. Luke’s protested and filed an
does not exceed 50% ang taxable income is
administrative protest with BIR but was not acted by the latter within the
10% under section 27 (B)

  Pero if it exceeds the 50%, taxable siya as 180 period thus reaching to the CTA.
NIT
30% Under subsection A of section 27 According to BIR, Section 27B of the NIRC imposing a 10%
preferential tax rate applies to St. Luke’s. Its reason is that it amends the
UST IS A STATE UNIVERSITY exemption on non-profit hospitals and which prevails over the
exemption on income tax granted under Section 30 (E and G) for non-
   There is no constitutional provision relating to the taxability of the stock, nonprofit charitable institution and civic organizations promoting
government social welfare. It further claimed that St. Luke’s was actually operating
   This area is OWNED by the government, if you say that it is a state for profit because only 13% came from charitable purposes and that it
university had a total revenue of P1.73B from patient services in 1998.
   Kumita siya ng 30M from t uition fee 
o  Is it income? YES Meanwhile, St. Luke’s contended that its operating income
o  Is it tax exempt? Yes, it falls under AS SUCH [Section 30 I]  only totaled P334 M (less the operating expenses) and out of that P218M
   Kumita siya ng 5M rentals (65%) made up its free services and further claimed that its income does
o  Is it income? YES  not inure to the benefit of anyone. Furthermore, it argued that it falls
o  Is it tax exempt? Yes, falls under last paragraph of Section under the exception provided under Sec. 30 (E) and (G) of NIRC and
30. making of profit per se does not destroy its tax exemption.
   Under RPT naman, ano ang rules bilang UST is a state
CTA En Banc ruled in favor of St. Luke’s exemption under Sec.
university. Lahat din exempted, basta ADE for educational
30 and reiterated its earlier fiding in another case identifying St. Luke’s
purposes, so kung may carpark din siya na may mcdo yung carpark
as a charitable institution. CTA adopted the test in Hospital de San Juan
nay un SUBJECT TO real property tax [BASIS: Sec 234 of LGC]
de Dios, Inc. v. Pasay City, which states that "a charitable institution does
   All real properties of the government of the Philippines are
not lose its charitable character and its consequent exemption from
EXEMPT except when the BENEFICIAL use pertains to a non-
taxation merely because recipients of its benefits who are able to pay are
exempt entity. The carpark is not exempt, because the beneficial
required to do so, where funds derived in this manner are devoted to the
use pertains to a non-exempt entity.
charitable purposes of the institution " (The generation of income
   The NSNPEI has the best situation in this case, this is because the
from paying patients does not per se destroy the charitable nature of St.
government gives it the best tax exemptions because it thanks such
Luke's.)
NSNPEI because the government cannot provide the education that
the people need
   The government is being taxed, pero it is in the exercise of its
proprietary function 
Issue: WON St. Luke’s is liable for deficiency income tax under Sec. 27 (B)
o  Jus imperii – Governmental function; not subject to suit
of the NIRC which imposes a 10% preferential rate.
o  Jus gestionis - Non- governmental function; subject to
suit

WHAT ABOUT CHARITABLE HOSPITALS vs PROPRITARY HOSPITALS

Held: Petition partly granted. YES, St. Luke’s is liable under Sec. 27 (B) of
the NIRC.
   Proprietary Hospital: same rules under Section 27 (B) Hence, yung
income is Generally taxable at 10%
Under Sec. 30 (E) of the NIRC provides that a charitable institution
o  Yung passive income is taxable under Subsection D
must be:  (1) non-stock corporation or association; (2)ORGANIZED
  20% on interests, royalties etc from DC

EXCLUSIVELY for charitable purposes; (3) OPERATED EXCLUSIVELY
  If from FC [NIT, 30%]

for charitable purposes; (4) No part of its net income or asset shall inure
  If interests tapos foreign currency 15%

to the benefit of any member , officer or any person. Under the last
provided na DC din nagbigay
paragraph of Sec. 30 of the NIRC if a tax exempt charitable institution
o  Pero, kapag yung “unrelated trade,
conducts "any" activity for profit, such activity is NOT TAX
business, income/profit niya” from the total taxable
EXEMPT even as its not-for-profit activities remain tax exempt. It
income is sobra sa 50% ang tax na babayaran na niya is
simply means that even if a charitable institution organized and
30% NIT under (A)
operated exclusively for charitable purposes is nevertheless allowed
o  Kapag RPT, basta ADE used for CRE purposes exempted
to engage in “activities conducted for profit” without losing its tax
in RPT exempt status for its no-for- profit activities. However, as a
   Kapag charitable hospital, kapag income “as such” EXEMPTED andsiya,
character" of a charitable institution "from any of its activities conducted for profit, regardless of the disposition made
consequence "income of whatever kind
under section (30) (E)(G) if not income as such, it falls under section
30 Last paragraph, taxable siya kung ganon
 income, shall be subject to tax." (Sec. 30, last par.). Therefore,
services rendered to paying patients are activities conducted for
profit and thus taxable under Sec. 27 (B) of the NIRC.

St. Luke's fails to meet the requirements under Section 30 (E) and
(G) of the NIRC to be completely tax exempt from all its income.
However, it remains a proprietary non-profit hospital under
Section
e any of its profits to its
nt to its corporate purposes. St. Luke's, as a proprietary non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit

Notes:

1. TEST OF CHARITY - as a gift, to be applied consistently with

existing laws, for the benefit of

an indefinite number of persons, either by bringing their
minds and hearts under the influence of education or
religion, by assisting them to establish themselves in life
or [by] otherwise lessening the burden of government. " (In
other words, charitable institutions provide for free goods
and services to the public which would otherwise fall on
the shoulders of government.)
2.   Solely is synonymous with EXCLUSIVELY. (Lung center of the
Phil.) 
3.   Proprietary- means private.
4.   Non-profit-  no net income accrues to the benefit of any person
and with all its income devoted to the institutions purpose and
all its activities CONDUCTED NOT FOR PROFIT.