I. General Principles of Taxation

A. Definition and concept of taxation

The inherent power of the sovereign exercised through the legislature to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of government [DOMONDON]

Is a mode by which the government make exactions for revenue in order to support its existence and carry out legitimate objectives

B. Nature of taxation

The nature of the state’s power to tax is two-fold. It is both an inherent power and a legislative power.

It is inherent in nature being an attribute of sovereignty. This is so, because without the taxes, the state’s existence would be imperiled. There is thus, no need for a constitutional grant for the state to exercise this power.

It is a legislative power because it involves the promulgation of rules. Taxation is a set of rules, how much is the tax to be paid, who pays the tax, to whom it should be paid, and when the tax should be paid. [ DOMONDON ]

Some authors add “Subject to Constitutional and Inherent limitations” so, 3 folds. Lol.

C. Characteristics of taxation

Enforced contribution – not dependant on the will of the payerPayable in money, generally.Proportionate – based on ability to payLevied on – persons, properties, rights, acts, privileges or transactions.Levied by- State, with jurisdiction over the over the subjectLevied for – Public purposeLegislative

EPP L4

D. Power of taxation compared with other powers

1. Police power

Gerochi vs. Doe, GR No. 159796, July 17, 2007 : [ THE EPIRA VALIDITY CASE]

The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency that is to pay it. It is based on the principle that taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need. Thus, the theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.

On the other hand, police power is the power of the state to promote public welfare by restraining and regulating the use of liberty and property.1 It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of the State. The justification is found in the Latin maxims salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut alienum non laedas (so use your property as not to injure the property of others). As an inherent attribute of sovereignty which virtually extends to all public needs, police power grants a wide panoply of instruments through which the State, as parens patriae, gives effect to a host of its regulatory powers. We have held that the power to "regulate" means the power to protect, foster, promote, preserve, and control, with due regard for the interests, first and foremost, of the public, then of the utility and of its patrons

The conservative and pivotal distinction between these two powers rests

in the purpose for which the charge is made. If generation of revenue is the

primary purpose and regulation is merely incidental, the imposition is a tax;

but if regulation is the primary purpose, the fact that revenue is incidentally

raised does not make the imposition a tax. [PDC v. Quezon City, APR 24,

1989]

2. Power of eminent domain

Eminent domain provides for just compensation? :D

1

E. Purpose of taxation 1. Revenue-raising

Primary purpose of taxation is to provide funds or property with which to promote the general welfare and protection it its citizens.

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation... If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. [PAL v. Edu, G.R. No. L- 41383 August 15, 1988]

2. Non-revenue/special or regulatory

Taxation is often employed as a device for regulation by means of which certain effects or conditions envisioned by governments may be achieved. These regulatory purposes are also known as Sumptuary. Thus, taxation can: (1) Strengthen anemic enterprises or provide incentive to greater production through grant of tax exemptions or the creation of conditions conducive to their growth. (2) Protect local industries against foreign competition by imposing additional taxes on imported goods, or encourage foreign trade by providing tax incentives on imported goods. (3) Be a bargaining tool by setting tariff rates first at a relatively high level before trade negotiations are entered into with another country. (4) Halt inflation in periods of prosperity to curb spending power; ward off depression in periods of slump to expand business. (5) Reduce inequalities in wealth and incomes, as for instance, the estate, donor's and income taxes, their payers being the recipients of unearned wealth or mostly in the higher income brackets. (6) Taxes may be levied to promote science and invention [see RA. No. 5448] or to finance educational activities [see RA. No. 5447) or to improve the efficiency of local police forces in the maintenance of peace and order through grant of subsidy (see RA.No. 6141)]. (7) Be an implement of the police power to promote the general welfare.

In Lutz v. Araneta, 78 Phil 148, it has been held that the Sugar Adjustment Act is an act enacted primarily under the police power and designed to obtain a readjustment of the benefits derived by people interested in the sugar industry as well as to rehabilitate and stabilize the industry which constitutes one of the great sources of the country's wealth and, therefore, affects a great portion of the population of the country.

Taxes may be levied with a regulatory purpose to provide means for rehabilitation and stabilization of a threatened industry which is imbued with public interest as to be within the police power of the State. [Caltex v. COA, G.R. No. 92585 May 8, 1992]

As long as a tax is for a public purpose, its validity is not affected by collateral purposes or motives of the legislature in imposing the levy, or by the fact that it has a regulatory effect [51 Am. Jur. 381-382.] or it discourages or even definitely deters the activities taxed. The principle applies even though the revenue obtained from the tax appears very negligible or the revenue purpose is only secondary. [see United States vs. Sanchez, 340 U.S. 42; Tio vs. Videogram Regulatory Board, 151 SCRA 208, 1987]

F. Principles of sound tax system

1. Fiscal adequacy The sources of tax revenue should coincide with, and approximate the needs

of, government expenditures. The revenue should be elastic or capable of expanding or contracting annually in response to variations in public expenditures.

2. Administrative feasibility Tax laws should be capable of convenient, just and effective

administration. Each tax should be capable of uniform enforcement by government officials, convenient as to the time, place, and manner of payment, and not unduly burdensome upon, or discouraging to business activity.

3. Theoretical justice The tax burden should be in proportion to the taxpayer’s ability to pay.

This is the so-called ability to pay principle. Taxation should be uniform as well as equitable

G. Theory and basis of taxation

1. Lifeblood theory

Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. [CIR v. Pineda]

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance... It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it [CIR v. Algue, G.R. No. L-28896, February 17, 1988].

2. Necessity theory

The power of taxation proceeds upon theory that the existence of government is a necessity; that is cannot continue without means to pay its expenses; and that for those means it has the right to compel all citizens and property within its limits to contribute.

The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. [Sison v. Ancheta, G.R. No. L-59431, July 25, 1984]

The obligation to pay taxes rests… upon the necessity of money for the support of the state. For this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out [Lorenzo v. Posadas, G.R. No. L-43082, June 18, 1937].

3. Benefits-protection theory (Symbiotic relationship)

This principle serves as the basis of taxation and is founded on the reciprocal duties of protection and support between the State and its inhabitants. Despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. [CIR v. Algue]

4. Jurisdiction over subject and objects

The limited powers of sovereignty are confined to objects within the respective spheres of governmental control. These objects are the proper subjects or objects of taxation and none else.

H. Doctrines in taxation 1. Prospectivity of tax laws

Prospective as a general rule. Retroactive tax law is possible when expressed and not oppressive.

2. Imprescriptibility

Does not prescribe unless the law clearly provides.

e.g. NIRC sec 203 and 222, LGC, Tarriff and Customs Code sec 1603

3. Double taxation

Means taxing twice the same taxpayer for the same tax period upon the same thing or activity when it should be taxed but once, for the same purpose and with the same kind of character of tax.

Direct Duplicate Taxation (STRICT SENSE)PPP C-A-T

1. Same property or person (object)2. Same purpose3. Same period4. Same character or kind of tax5. Same government authority6. Within the same territory, jurisdiction or taxing district

*this defeats the constitutional requirement of uniformity and equal protection.Indirect = one or more element above missing

4. Escape from taxation

a) Shifting of tax burden

*Only applicable to excise taxes

INWARD – Producer (statutory taxpayer) shifts burden to ConsumerOUTWARD - Consumer (statutory taxpayer) shifts burden to ProducerONWARD – both in and out lol

b) Tax avoidance

Legal use of tax regime to reduce tax to ones own advantage. c) Tax evasion

END ACHIEVED – MIND (BAD FAITH) – UNLAWFUL (ACT/OM)

E-M-U

a. The end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due;

b. an accompanying state of mind which is described as being “evil” on “bad faith,” “willful,” or ”deliberate and not accidental”; and

c. a course of action or failure of action which is unlawful. (Commissioner of Internal Revenue v. The Estate of Benigno P. Toda, Jr., , etc., G. R. No. 147188, September 14, 2004)

5. Exemption from taxation

CIR vs. Acesite (Philippines) Hotel Corporation, G.R. No. 147295, February 16, 2007

Pagcor – Tax exempt all kind, Extends to ACESTITE (Franchise Holder, by law)

Digital Telecommunications Phils. Inc. vs. Province of Pangasinan, GR No. 152534, February 23, 2007“In view of the unequivocal intent of Congress to exempt from real property tax those real properties actually, directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise, respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification.”

Silkair (Singapore) PTE, Ltd vs. CIR, GR No. 173594, February 6, 2008

Fuel- Part of purchase price. Silkair cannot claim tax exemption in an indirect tax where it is not the statutory tax payer.

Davao Oriental Electric Cooperative vs. Davao Oriental, GR No. 170901, January 20, 2009

No retroactive effect!

NAPOCOR vs. CBAA, LBAA of La Union, et al, GR No. 171470, January 30, 2009

Strict, Napocor was not Directly and Exclusively using the machines, therefore no exemption.

CIR vs. PAL, GR No. 160528, October 9, 2006

Tax exempt on franchaise-pal

Zero liability on tax = payment of tax, all other exempt

San Pablo Manufacturing Corporation vs. CIR, GR No. 147749, June 22, 2006

The language of the exempting clause of Section 168 of the 1987 Tax Code was clear. The tax exemption applied only to the exportation of rope, coconut oil, palm oil, copra by-products and dessicated coconuts, whether in their original state or as an ingredient or part of any manufactured article or products, by the proprietor or operator of the factory or by the miller himself.

PAL vs. CIR, GR 198759, July 1, 2013

6. Compensation and set-off

General rule: Internal revenue taxes cannot be the subject of set-off or compensation [Republic v. Mambulao Lumber, G.R. No. L-17725, February 28, 1962].

Reasons: (1) This would adversely affect the government revenue system (Philex Mining v. CA G.R. No. 125704. August 28, 1998). (2) Government and the taxpayer are not creditors and debtors of each other. The payment of taxes is not a contractual obligation but arises out of a duty to pay. [Republic v. Mambulao Lumber (1962)] Exception: If the claims against the government have been recognized and an amount has already been appropriated for that purpose. Where both claims have already become due and demandable as well as fully liquidated, compensation takes place by operation of law under Art. 1200 in relation to Articles 1279 and 1290 of the NCC, and both debts are extinguished to the concurrent amount. [Domingo v. Garlitos, G.R. No. L-18994, June 29, 1963]

7. Compromise - Commissioner

A contract whereby the parties, by making reciprocal concessions avoid litigation or put an end to one already commenced. (Art. 2028, Civil Code). It involves a reduction of the taxpayer’s liability.

Requisites of a tax compromise: (a) The taxpayer must have a tax liability. (b) There must be an offer (by the taxpayer or Commissioner) of an amount to be paid by the taxpayer. (c) There must be acceptance (by the Commissioner or the taxpayer, as the case may be) of the offer in settlement of the original claim. Generally, compromises are allowed and enforceable when the subject matter thereof is not prohibited from being compromised and the person entering into it is duly authorized to do so.

(1) In the National Internal Revenue Code, the Commissioner of Internal Revenue is expressly authorized to enter, under certain conditions, into a compromise of both the civil and criminal liabilities of the taxpayer [Sec. 204, NIRC]. (2) The power to compromise in respect of customs duties is, at best, limited to cases where potestive authority is specifically granted such as in the remission of duties by the Collector of Customs [Sec. 709, Tariff and Customs Code] and cases involving imposition of fines, surcharges and forfeitures which may be compromised by the Commissioner subject to the approval of the Secretary of Finance [Sec. 2316, Tariff and Customs Code] (3) No provisions exist under the Local Government Code, while the tax (not criminal) liability is not prohibited from being compromised [see Arts. 2034 and 2035, Civil Code]; there is no specific authority, however, given to any public official to execute the compromise so as to render it effective. [Vitug, p. 48]

8. Tax amnesty -

A tax amnesty partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and become a part of the new society with a clean slate.[Republic v. IAC (1991)] A tax amnesty, much like a tax exemption, is never favored nor presumed in law. If granted, the terms of the amnesty, like that of a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. For the right of taxation is inherent in government. The State cannot strip itself of the most essential power of taxation by doubtful words. He who claims an exemption (or an amnesty) from the common burden must justify his claim by the clearest grant of organic or state law. It cannot be allowed to exist upon a vague implication. If a doubt arises as to the intent of the legislature, that doubt must be resolved in favor of the state. [CIR v. Marubeni Corp.,372 SCRA 576, 2001]

9. Construction and interpretation of:

CIR vs. San Miguel Corporation, GR 184428, November 23, 2011

a) Tax laws b) Tax exemption and exclusion c) Tax rules and regulations d) Penal provisions of tax laws e) Non-retroactive application to taxpayers

Strict on Taxer Liberal on Taxed Strict on Tax Exempt.

I. Scope and limitation of taxation

1. Inherent limitations a) Public purpose

The proceeds of the tax must be used for the support of the State or for some recognized objects of the government or to promote the welfare of the community

TESTS:DUTY TEST- whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State as a government to provide.

PROMOTION OF THE GENERAL WELFARE TEST- will promote welfare? lol

CHARACTER OF THE DIRECT OF OBJECT OF EXPENDITURE- it is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax and not the magnitude of the interests to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental advantage to the public or to the State, which results from the promotion of private enterprises or business, does not justify their aid with public money. [Pascual v. Sec. of Public Works, G.R. No. L-10405, December 29, 1960]

b) Inherently legislative Philippine Fisheries Development Authority vs. CA, GR No. 150301, October 2, 2007

c) Territorial

A state may not tax property lying outside its borders or lay an excise or privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of another state and therein exercise and enjoyed.

d) International comity Comity- respect accorded by nations to each other because they are sovereign equals. Thus, the property or income of a foreign state or government may not be the subject of taxation by another state.

Deutsche Bank AG Manila Branch vs. CIR, GR No. 188550, August 19, 2013

This Court is now confronted with the issue of whether the failure to strictly comply with RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax treaty.HELD: NO.

e) Exemption of government entities, agencies, and instrumentalities

City of Pasig vs. Republic, GR 185023, August 24, 2011

Phil. Fisheries Development Authority vs. CBAA, GR 178030, December 15, 2010

2. Constitutional limitations

CIR vs. Hon. Raul Gonzales, GR. 177279, October 13, 2010

J. Stages of taxation

(1) Levy or imposition– This process involves the passage of tax laws or ordinances through the legislature. The tax laws to be passed shall determine those to be taxed (person, property or rights), how much is to be collected (the rate and the base of tax), and how taxes are to be implemented (the manner of imposing and collecting tax). It also involves the granting of tax exemptions, tax amnesties or tax condonation. (2) Assessment and Collection – This process involves the act of administration and implementation of tax laws by the executive through its administrative agencies such as the Bureau of Internal Revenue or Bureau of Customs. (3) Payment – this process involves the act of compliance by the taxpayer in contributing his share to pay the expenses of the government. Payment of tax also includes the options, schemes or remedies as may be legally open or available to the taxpayer. (4) Refund – A claim for refund must first be filed with the Commissioner of Internal Revenue. A suit or proceeding may be filed within two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment. The Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return, such payment appears clearly to have been erroneously paid. [Sec. 229, NIRC]

K. Definition, nature, and characteristics of taxes

L. Requisites of a valid tax

(1) for a public purpose (2) rule of taxation should be uniform (3) the person or property taxed is within the jurisdiction of the taxing authority (4) assessment and collection is in consonance with the due process clause (5) The tax must not infringe on the inherent and constitutional limitations of the power of taxation

M. Tax as distinguished from other forms of exactions 1. Tariff 2. Toll 3. License fee4. Special assessment 5. Debt

N. Kinds of taxes 1. As to object

a) Personal, capitation, or poll tax b) Property tax c) Privilege tax

2. As to burden or incidence a) Direct b) Indirect

Silkair (Singapore) Pte Ltd vs. CIR, GR 166482, January 25, 20123. As to tax rates

a) Specific b) Ad valorem c) Mixed

4. As to purposes a) General or fiscal b) Special, regulatory, or sumptuary

5. As to scope or authority to impose a) National – internal revenue taxes b) Local – real property tax, municipal tax

6. As to graduation a) Progressive b) Regressive c) Proportionate

1. Cagayan Electric Power & Light vs. CIR GR 60126 Sept 25 19852. Manila Electric Co. vs. City Government of San Pablo 306 SCRA 7503. Tolentino vs. Secretary of Finance GR 155455 Aug 25 19944. Province of Abra vs. Hernando 107 SCRA 1045. Abra Valley College vs. Aquino 162 SCRA 1066. Lung Center of the Phil vs. QC GR 144104 June 29 20047. Lladoc vs. CIR GR L-19201 June 16 19648. Roman Catholic Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte 51 Phil 3529. CIR vs. Bishop of the Missionary District of the Phil GR L-19445 Aug 31 196510. YMCA of Manila vs. Collector of Internal Revenue 33 Phil 21711. CIR vs. CA GR 124043 Oct 14 1998

II. National Internal Revenue Code (NIRC) of 1997, as amended RA 9504

A. Income taxation - Sections 22 to 83

Defs1. Person – individual, a trust, estate or corporation.

2. 'corporation' shall include a. partnerships, no matter how created or b. organized, joint-stock companies, joint accounts (cuentas

en participacion), c. association, or d. insurance companies,

i. but does NOT include 1. general professional partnerships and 2. a joint venture or consortium formed for the purpose

of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the Government.

ii. 'General professional partnerships' are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business.

3. The term 'domestic,' when applied to a corporation, means created or organized in the Philippines or under its laws.

4. The term 'foreign,' when applied to a corporation, means a corporation which is not domestic.

5. Non-Resident Citizens

(1) who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein.

(2) who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis.

(3) 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.

(4) A citizen who has been previously considered as nonresident 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 nonresident 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 his arrival in the Philippines.

(5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section.

6. The term 'resident alien' means an individual whose residence is within the Philippines and who is not a citizen thereof.

Aliens (1) Resident Alien An alien actually present in the Philippines who is not a mere transient or sojourner is a resident for income tax purposes. No/Indefinite Intention = RESIDENT: If he lives in the Philippines and has no definite intention as to his stay, he is a resident. A mere floating intention indefinite as to time, to return to another country is not sufficient to constitute him a transient. Definite Intention = TRANSIENT: One who comes to the Philippines for a definite purpose, which in its nature may be promptly accomplished, is a transient. Exception: Definite Intention but such cannot be promptly accomplished; If his purpose is of such nature that an extended stay may be necessary for its accomplishment, and thus the alien makes his home temporarily in the Philippines, then he becomes a resident. (2) Non-resident Alien Engaged in trade or business within the Philippines - If the aggregate period of his stay in the Philippines is more than 180 days during any calendar year.

Not engaged in trade or business within the Philippines - If the aggregate period of his stay in the Philippines does not exceed 180 days

a.

1. Income tax systems a) Global tax system

b) Schedular tax system c) Semi-schedular or semi-global tax system

2. Features of the Philippine income tax law a) Direct tax b) Progressive c) Comprehensive d) Semi-schedular or semi-global tax system

3. Criteria in imposing Philippine income tax a) Citizenship principle b) Residence principle c) Source principle

4. Types of Philippine income tax 5. Taxable period

a) Calendar period b) Fiscal period c) Short period

6. Kinds of taxpayers a) Individual taxpayers

(i) Citizens (a) Resident citizens (b) Non-resident citizens

(ii) Aliens (a) Resident aliens (b) Non-resident aliens

(1) Engaged in trade or business (2) Not engaged in trade or business

(iii) Special class of individual employees (a) Minimum wage earner – RMC 7-2014

b) Corporations (i) Domestic corporations (ii) Foreign corporations

a) Resident foreign corporations

(b) Non-resident foreign corporations (iii) Joint venture and consortium

c) Partnerships d) General professional partnerships e) Estates and trusts f) Co-ownerships

7. Income taxation a) Definition b) Nature c) General principles

8. Income a) Definition b) Nature c) When income is taxable

(i) Existence of income (ii) Realization of income

(a) Tests of realization (b) Actual vis-à-vis constructive receipt

(iii) Recognition of income (iv) Methods of accounting

(a) Cash method vis-à-vis accrual method (b) Installment payment vis-à-vis deferred payment vis-à-vis

percentage completion (in long-term contracts) d) Tests in determining whether income is earned for tax purposes

(i) Realization test (ii) Claim of right doctrine or doctrine of ownership, command, or

control (iii) Economic benefit test, doctrine of proprietary interest (iv) Severance test (v) All events test

9. Gross income

a) Definition b) Concept of income from whatever source derived c) Gross income vis-à-vis net income vis-à-vis taxable income d) Classification of income as to source e) Sources of income subject to tax (f) Situs of income taxation (see page 2 under inherent limitations, territorial) (g) Exclusions from gross income (h) Deductions from gross income

CIR vs. Isabela Cultural Corporation G.R. No. 172231, February 12, 2007

RR 16-2008

Carmelino Pansacola vs. CIR, GR No. 159991, November 16, 2006Claim: Income in 1987 as creditJanuary 1, 1988.

10. Taxation of resident citizens, non-resident citizens, and resident aliens RR 11-2012 RR 8-2012 RMC 20-2011 RR 10-2008

11. Taxation of non-resident aliens engaged in trade or business

On gross. 25%

12. Individual taxpayers exempt from income tax - a) Senior citizens – RA 9994 M.E. Holding Corporation vs. CA, GR No. 160193, March 3, 3008 CIR vs. Cental Luzon Drug Corporation, GR No. 159610, June 12, 2008 Bicolandia Drug Corp vs. CIR, GR No. 142299, June 22, 2006 Carlos Superdrug Corp vs. DSWD, GR No. 166494, June 29, 2007b) Minimum wage earners – RA 9504; RMC 23-2011c) Exemptions granted under international agreements

13. Taxation of domestic corporations

Regular (32%)

Minimum Corporate Income Tax (2% of gross income)

(a) applies to domestic corporations and RFCs whenever such corporations have zero or negative taxable income or whenever the MCIT is greater than the normal income tax due from such corporations.

(b) Imposed upon any domestic corporation beginning the fourth taxable year in which such corporation commenced its business operations. For purposes of the MCIT, the taxable year in which business operations commenced shall be the year when the corporation registers with the BIR (not in which the corporation started commercial operations).

(c) Tax rate: 2% of the Gross Income

Gross Income Defined. – For purposes of applying the [MCIT] provided under Subsection (E) hereof, the term ‘gross income’ shall mean gross sales less sales returns, discounts and allowances and cost of goods sold. “Cost of goods sold” shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use.

 For trading or merchandising concern, “cost of goods sold”

shall include the invoice cost of the goods sold, plus import duties, freight in transporting the goods to the place where the goods are actually sold including insurance while the goods are in transit.

 For a manufacturing concern, “cost of goods manufactured

and sold” shall include all costs of production of finished goods, such as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse.

 In the case of taxpayers engaged in the sale of service, “gross

income” means gross receipts less sales returns, allowances, discounts and cost of services. “Cost of services” shall mean all direct costs and expenses necessarily incurred to provide the services required by the customers and clients including (A) salaries and employee benefits of personnel, consultants and specialists directly rendering the service and (B) cost of facilities directly utilized in providing the service such as depreciation or rental of equipment used and cost of supplies: Provided, however, that in the case of banks, “cost of services” shall include interest expense.

Chamber of Real Estate and Builders Association vs. Romulo et., al, GR No. 160756, March 9, 2010

Valid! MCIT and CWT

CIR vs. PAL, GR 179259, September 25, 2013

Tax Exempt ang PAL cuz of its charter, incl MCIT

CIR vs. St. Luke’s Medical Center, GR 195909, September 26, 2012

RR 1-2009

RR 1-2007

14. Taxation of resident foreign corporations

CIR vs. Citytrust Investment Phils, Inc., GR No. 139786, September 27, 2006 South African Airways vs. CIR, GR No. 180356, February 16, 2010

Sales of passage doc = Doin biz in the PH, income in the PHInc in:RA 10378; 28 (a- 3a)RR 15-2013

++BOAC CASE! :DNo landingSells tickets to PH through FIL ticket.WON: IACariers = doin biz? notSouth African = controlling case

15. Taxation of non-resident foreign corporations

16. Improperly accumulated earnings of corporations

This is the income tax imposed on a corporation if its earnings and profits are accumulated (undistributed) instead of being divided and distributed to its stockholders.

An improperly accumulated earnings tax (IAET) equal to 10% is imposed for each taxable year on the improperly accumulated taxable income of each corporation.

It is imposed on domestic corporations which are classified as closely-held corporations.

17. Exemption from tax on corporations

18. Taxation of partnerships

19. Taxation of general professional partnerships

20. Withholding tax – RR 2-98 as amended RR 12-2013 CIR vs. SMART Communications, Inc. GR No. 179045-46, August 25, 2010

NOTES

RCIT ( REGULAR CORPORATE INCOME TAX)

Formula:

Gross income – exclusions = Gross Taxable Income

Gross Taxable income – Allowable Deductions = Net Taxable income

Note 40 (c)