Chapter 1: Introduction of Taxation

Taxation

Cost
State Power Powers Distribution

Pays taxes

Government

Public Service
Inherent Power of
People
the State

Theories of taxation

Taxation Police Eminent

Power Power Domain

Bene t Ability to
received pay

Inherent Constitutional

Limitation Limitation

Vertical Horizontal

Equity Equity

Stages of exercise of

taxation Power

Assessment and
Levy or Imposition
Collection
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 Benefit to pay theory
the more benefit ones receives from the government, the more taxes here should pay.

Ability to pay theory

taxation should also consider the taxpayers ability to pay.

Aspects of the ability to pay

1. Vertical equity
-the extent of ones ability to pay is directly proportional to the level of his tax base.
2. Horizontal equity
-consider particular circumstances of the taxpayer.

The Lifeblood Doctrine

-Taxes are essential and indispensable to the continued subsistence of the government.

Situs of Taxation
-is the place of taxation. It is the tax jurisdiction that has the power to levy taxes upon the tax
objects.

EXAMPLES
1. Business tax situs- subject to tax in the place where the business is conducted.
2. Income tax situs- Service fees are subject to tax where they are rendered
3. Income tax situs on sale goods- The gain on sale is subject to tax in the place of sale.
4. Property tax situs-taxable in their location.
5. Personal tax situs- taxable in their place of residence.

OTHER FUNDAMENTAL DOCTRINES IN TAXATION

1. Marshall Doctrine- "The power to tax involves the power to destroy."
2. Holme's Doctrine- "Taxation power is not the power to destroy while the court sits."
3. Protectively of tax laws- tax laws are generally protective in operation. An ex post facto law
or a law that retroacts is prohibited by the Constitution.
4. Non compensation or set off- taxes are not subject to automatic set off or compensation. The
taxpayer cannot delay payment of tax to wait for the resolution of a lawsuit involving his
pending claim against the government. TAX IS NOT A DEBT.

 5. Non assignment of taxes- Tax obligations cannot be assigned or transferred to another entity
by contract.
6. Imprescriptibility in taxation- Prescription is the lapsing of right due to a passage of time.

DOUBLE TAXATION
-Occurs when the same taxpayer is taxed twice by the same tax jurisdiction for the same thing.

Elements of double taxation

1. Primary element: Same object
2. Secondary Elements:
a. Same type of tax
b. Same purpose of tax
c. Same taxing jurisdiction
d. Same tax period

TYPES OF DOUBLE TAXATION

1. Direct double taxation
This occurs when all elements of double taxation exists for both imposition.
2. Indirect double taxation
This occurs when atleast one of the secondary elements of double taxation is common for both
impositions.

Can be minimized by:

a. Provision of tax exemption

b. Allowing foreign tax credit

c. Allowing reciprocal tax treatment

d. Entering to a treaties or a Bilateral Agreement.

 Chapter 2:Taxes,Tax laws and Tax Administration

Taxation Law

Types of Taxation Law

Tax Laws Tax Exemption Law

a. National Internal Revenue a. Minimum Wage Law

Code b. Omnibus Investment Code of 1987
b. Tarif and Customer Code c. Barangay Micro Business
c. Local tax code Enterprise Law
d. Real property Tax Code
d. Cooperative Development Act

Sources of Taxation Law

a. Constitution
b. Statutes and Presidential Decree
c. Judicial Decision
d. Executive Orders and Batas Pambansa
e. Administrative Issuances
f. Local ordinances
g. Tax treaties and Conventions in Foreign Countries
h. Revenue Regulations

Types of Administrative Issuances

a. Revenue Regulations
b. Revenue Memorandum orders
c. Revenue Memorandum Rulings
d. Revenue Memorandum Circulars
e. Revenue Bulletins
f. BIR Rulings

 Types of Rulings

a. Value added tax rulings

b. International tax affairs Division Rulings
c. BIR Rulings
d. Delegated Authority Rulings

Tax

Type of Tax System

Elements of a Valid Classi cation of Tax Collecting
According to
Tax taxes System
Impact

Progressive Regressive

a. As to purpose
b. As to subject matter
c. As to incidence
a. Tax must be levied by the taxing power
d. As to amount
having jurisdiction over the object
e. As to rate
taxation.
f. As to imposing
b. Tax must nit violate constitutional and
authority
inherent limitations.
c. Tax must be uniform and equitable.

d. Tax must be proportional in character.

e. Tax is generally payable in money.

a. Withholding System
on income tax
b. Withholding system
on business tax
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Nature of Philippine Tax Laws

Philippine tax laws are civil and not political in nature. they are effective even periods during
enemy occupation. They are the laws of the occupied territory and not by the occupying enemy.
Tax payments during occupations of enemy are valid.

The penalty provision are merely intended to secure taxpayers compliance.

Principles of Sound Tax System

According to Adam Smith
1. Fiscal Adequacy
2. Theoretical Justice
3. Administrative Feasibility

 Chapter 3: Introduction to Income Taxation

Income Taxation

Elements of Gross Income

Not exempted by
Return on Capital Realized Bene t Law, Contract or

Treaty

Types of
Income Tax Payers

Individuals Corporations

1. Citizen 1. Domestic
a. Resident Citizen Corporation
b. Non-resident 2. Foreign
2. Alien Corporation
a. Resident Alien a. Resident Foreign
3. Taxable Estates and b. Non-resident
Trust Foreign

Situs of Income
⁃ is the place of taxation of income. It is the jurisdiction that has
the authority to impose tax upon income.

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 Chapter 4: Income Tax Schemes, Accounting Periods, Accounting Methods and Reporting

Item of Gross Income

Taxable to Anyone

of

Regular
Final Income Capital Gains
Income
Taxation
Taxation
Taxation

Passive Income Active

Other Income

a. Gains from dealings in

properties, not subject too
capital gains tax.
b. Other passive income not
subject to nal tax

Types of Accounting Period

1. Regular Accounting
Period
a. Calendar
b. Fiscal
2. Short Accounting Period

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 Instances of Short Accounting Period

1. Newly commenced business- the accounting period covers the date of the start of the
business until the designated year end of the business.
2. Dissolution of business-the accounting period covers the start of the current year to the date
of the dissolution of the business.
3. Change of accounting period by corporate taxpayers- covers the start of the previous
accounting period up to the designated year end of the new accounting .
4. Death of the taxpayer-covers the start of the calendar year until the death of the taxpayer.
5. Termination of the accounting period of the taxpayer by the Commissioner of the Internal
Revenue-covers the start of the current year until the death of the termination of the
accounting period.

ACCOUNTING METHODS
Types of Accounting Methods
1. General methods
a. Accrual basis
b. Cash basis
2. Installment and deferred payment method
3. Percentage of completion method
4. Outright and spread out method
5. Copy year basis.

 Chapter 5: Final Income Taxation

Features of Income Taxation

Imposed
Tax Witholding Territorial
Final Tax
certain Passive
at source imposition
income

Final Tax on Other Applications

Individuals and of the Final tax
Corporations Interest

1. Deposit substitute
2. Government Securities
3. Money Market Placements
4. Trust Fund
5. Other investment evidenced by
certi cates prescribed by the BSP.
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TAX INFORMERS REWARDS

-May given to any person instrumental to the discovery of violations of National Internal
Revenue Code or discovery and seizure of smuggled goods.

Requisites of Tax Informers Reward:

1. Definite sworn information which is not yet ibt the possession of the BIR.
2. The information furnished lead to the discovery of fraud upon internal revenue laws or
provisions thereof.
3. Enforcement results in recovery of revenues, surcharges and fees and/or conviction of the
guilty party or imposition of any fine or penalty.
4. The informer must not be a
a. BIR Official or employee
b. Other public official or employee
c. relative within the 6th degree of consanguinity of those officials or employee in a and b.

ENTITIES EXEMPT FROM FINAL INCOME TAX

1. Foreign Government's and Foreign Government owned and controlled .
2. Internal missions or organization with tax immunity.
3. General Professional Partnership
4. Qualified Employee Trust Fund.

 Chapter 6: Capital Gains Taxation

Capital Gain
Taxes

Individual Taxpayers

Personal Asset
(All are capital
Business Asset
assets)

Ordinary Ordinary
Assets Assets

Corporate Taxpayer

Ordinary Assets Ordinary Assets

 Asset Classification Rules

a. A property purchased for use in business is an ordinary asset even though this purpose is later
thwarted by circumstances beyond taxpayers controls.
b. Discontinuance of the active use the property does not change its character previously as
business property.
c. Real properties used, being used, or have been previously used, in trade of the taxpayer shall
be considered add ordinary assets.
d. Properties classified as ordinary assets for being used in a business by a taxpayer not engaged
in the real estate business are anatomically converted to capital assets if not being used for 2
years with proof involving such property.
e.A depreciable asset iras an ordinary asset even of it is depreciated.
f. Real properties used by and exempt corporation in its operations considered capital assets.
g. The classification property transferred by sale, barter or exchange, inheritance, donation, or
declaration of property dividends shall depends is whether the acquirer uses it in business.
h. For properties subject to involuntary transfer, it has no effect of the classification of such
property.
i. Change in business from real estate to non real estate business shall not change the
classification of ordinary assets previously held.

Nature of the 6% Capital Gain

a. Presumption of capital gains
b. Non-consideration of the involuntariness of the sale
c. Final Tax

EXCEPTIONS TO THE 6% CAPITAL GAIN TAX

1. Alternative taxation rule
2. Exemption rules
a. Exemption under NIRC
b. Exemption under Special Laws