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WITHHOLDING TAXES
Atty. Vic C. Mamalateo
July, 2011
Ateneo Law School
BASICTAX PRINCIPLES
LIFEBLOOD THEORY
Taxation is the rule; exemption, the exception.
In case of doubt, tax income or disallow
deductions and tax credits.
INCOME TAX
INCOME TAX
Tax on all yearly profits arising from property, professions, trades
or offices, or as a tax on a persons income, emoluments, profits
and the like (Fisher v. Trinidad).
Income tax is a direct tax on taxable actual or presumed income
(gross or net) of a taxpayer received, accrued or realized during
the taxable year.
WITHHOLDING TAX
It is not an internal revenue tax but a mode of collecting income
tax in advance on income of the recipient of income thru the
payor of income. [NOTE: Sec. 21, NIRC enumerates various
internal revenue taxes.]
There are 2 types of withholding taxes, namely: (1) final
withholding tax; and (2) creditable withholding tax, including
expanded withholding tax.
Residence principle
For alien individuals and foreign corporations
Source principle
For alien individuals and foreign corporations
1.
2.
3.
4.
FORMULA
GLOBAL SYSTEM
Gross sales
Less: Cost of sales
Gross income
Less: Deductions
PAE (for ind.)
Net taxable income
Multiplied by applicable
rate (graduated or flat)
Income tax due
Less: Creditable WT
Balance
SCHEDULAR SYSTEM
Gross selling price or fair
market value, whichever
is higher times applicable
tax rate = Tax due (real
property)
Gross selling price less
cost or adjusted basis =
Capital gain times
applicable tax rate = Tax
due (shares of dom corp)
Gross income times
applicable rate = Tax due
(passive inv income;
income paid to nonresident person)
KINDS OF TAXPAYERS
INDIVIDUAL, including estate and trust
CITIZEN
Resident
Non-resident
Engaged in trade or business (more than 180 days in the Phil)
Not engaged in trade or business (180 days or less stay in Phil)
Law of incorporation
RULE: All taxpayers are taxed only on income from sources within
the Phil, except RC and DC.
PARTNERSHIPS
EXEMPT
General professional partnership (GPP)
Joint venture undertaking construction activity or energyrelated activities with operating contract with the government
TAXABLE
Partnerships, no matter how created or organized
RULES:
If taxable, partnership is taxed like a corporation.
If taxable partnership derives net income during the year, the
entire net income is deemed received by the partners in the year
it was earned by the partnership.
If GPP adopts itemized deductions during the year, partners
must use itemized deductions during the same year.
JOINT VENTURE
Lease of properties under common management
Three sisters borrowed money from their father and bought twenty-four (24) pieces of
real property that they leased to various tenants for over fifteen years and derived
rentals therefrom. They appointed their brother to manage their properties and to
collect and receive rents.
The court ruled that a taxable partnership was formed. There were series of
transactions where petitioners purchased twenty-four lots, showing that the purpose
was not limited to the conservation of the common fund or even the properties
acquired by them. The character of habituality peculiar to business transactions
engaged in for the purpose of gain was present. The properties were leased out to
tenants for several years. Moreover, the term corporation includes organizations
that are not necessarily partnerships in the technical sense of the term as well as
partnerships, no matter how created or organized. This qualifying expression clearly
indicates that a joint venture need not be undertaken in any of the standard forms, or
in conformity with the usual requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on corporations (Evangelista vs.
Collector, 102 Phil. 140).
When a father and son purchased a lot and building, entrusted the administration of
the building to an administrator and divided equally the net income, there is a taxable
partnership (Reyes vs. Commissioner, 24 SCRA 198).
JOINT VENTURE
Insurance pool or clearing house
An insurance pool or clearing house, composed of 41 non-life
insurance corporations, whose role was limited to its principal
function of allocating and distributing the risks arising from the
original insurance among the signatories to the treaty or the
members of the pool on their ability to absorb the risks ceded as well
as the performance of incidental functions, such as records,
maintenance, collection and custody of funds, and which did not
insure or assure any risk in its own name, was treated as a
partnership or association subject to tax as a corporation.
Article 1767 of the Civil Code recognizes the creation of a contract
of partnership when two or more persons bind themselves to
contribute, money, property, or industry to a common fund, with the
intention of dividing the profits among themselves. Its requisites are
mutual contribution to a common stock, and a joint interest in the
profits (AFISCO Insurance Corp et al. vs. Commissioner, G.R. No. 112675, Jan. 25,
1999).
JOINT VENTURE
JOINT VENTURE
The totality of the circumstances and the stipulations in the parties
agreement indubitably lead to the conclusion that a partnership was
formed between the parties.
First, it does not appear that Baguio Gold was unconditionally
obligated to return the advances made by Philex under the
agreement.
Second, the Tax Court correctly observed that it was unlikely for a
business corporation to lend hundreds of millions to another
corporation with neither security nor collateral or a specific deed
evidencing the terms and conditions of such loans. The parties also
did not provide for a specific maturity date for the advances to
become due and demandable, and the manner of payment was
unclear.
Third, the strongest indication that Philex was a partner is the fact
that it would receive 50% of the net profits as compensation under
the agreement (Philex Mining Corporation vs. Commissioner, G.R. No. 148187,
Apr. 16, 2008).
SOURCES OF INCOME
Interest Interest from sources within Phil and interest on bonds and
obligations of residents, corporate or otherwise
Dividend From domestic corporation and from foreign corporation, unless
less than 50% of gross income of foreign corporation for 3 years prior to
declaration of dividends was derived from sources within the Phil, in which
case, apply only ratio of Phil-source income to gross income from all
sources
Services Place where services are performed, except in case of
international air carrier and shipping lines which are taxed at 2.5% on their
Gross Phil Billings. Revenues from trips originating from the Phil are
considered as income from sources within the Philippines, while revenues
from inbound trips are treated as income from sources outside the
Philippines.
Rentals and royalties Location or use of property or property right in Phil
Sale of real property Located in the Philippines
Sale of personal property Located in the Philippines
Gain from sale of shares of stocks of a domestic corporation is
ALWAYS treated as income from sources within the Philippines.
Other intangible property Mobilia sequuntur personam (e.g., gain from
sale of shares of stocks of a foreign corporation)
GROSS INCOME
SALE OF GOODS
Gross Sales
Less: Cost of Sales:
Beg. Inventory
+ Purchases
Total available for sale
- Ending inventory
Cost of Sales
Gross income
Times 2%
MCIT
SALE OF SERVICES
Gross Revenue
Less: Cost of Service
Gross income
Timex 2%
MCIT
INCOME
INCOME means cash or its equivalent coming to a person within a
specified period, whether as payment for services, interest or profit
from investment. It covers gain derived from capital, from labor, or
from both combined, including gain from sale or conversion of
capital assets.
Return of capital is exempt from income tax. Capital, labor, or
property is the tree; income is the fruit. Capital is the fund, income is
the flow of fund.
To be taxable, there must be income, gain or profit; gain is received,
accrued or realized during the year; and it is not exempt from
income tax under the Constitution, treaty or law.
Mere increase in the value of property does not constitute taxable
income. It is not yet realized during the year.
Transfer of appreciated property to the employee for services rendered
is taxable income.
NATURE OF INCOME
COMPENSATION INCOME
Existence of employer-employee relationship
CAPITAL GAIN
Real property in the Phil and shares of stock of domestic
corporation
Other sources of capital gain
OTHER INCOME
Prizes and winnings
All other income, gain or profit not covered by the above classes
COMPENSATION INCOME
Compensation income falling within the meaning of statutory
minimum wage(SMW) under R.A. 9504, effective July 6, 2008, as
implemented by Revenue Regulations No. 10-2008 dated July 8,
2008, shall be exempt from income tax and withholding tax.
Holiday pay, overtime pay, night shift differential pay, and hazard
pay earned by Minimum Wage Earner (MWE) shall likewise be
covered by the above exemption, provided that an employee who
receives/earns additional compensation such as commissions,
honoraria, fringe benefits, benefits in excess of the allowable
statutory amount of P30,000, taxable allowances and other taxable
income other than the SMW, holiday pay, overtime pay, hazard pay
and night shift differential pay shall not enjoy the privilege of being a
MWE and, therefore, his/her entire earnings are not exempt from
income tax and withholding tax.
COMMISSION INCOME
CAPITAL GAINS
3 TYPES OF CAPITAL GAINS
Capital gain from sale of real property located in the
Phil
Capital gain from sale of shares of stocks of a
domestic corporation
Other types of capital gains
SALE OF SHARES OF
DOMESTIC CORPORATION
Seller is a dealer in securities
Dealer in securities is a person regularly engaged in the buy and
sale of securities for his own account. He sells property and
looks at profits from sale of shares or securities. A stockbroker is
a middleman between the seller and buyer of stocks or
securities. He is a seller of services and his income is
commission.
Shares are ordinary assets of seller; selling price less cost or
adjusted basis equals gain; gain from sale is subject to global tax
system of income taxation.
Transaction involving listed shares traded in local stock
exchange is not covered by Sec 127(A), NIRC (stock transaction
tax), by express provision of law.
SHARES OF DOMESTIC
CORPORATION
Seller is an investor who is not a dealer in securities
If shares are listed and traded in a local stock
exchange, apply of 1% stock transaction tax on
gross selling price or gross value in money. Sale is
exempt from income tax.
If shares are listed but not traded in a local stock
exchange (or over-the-counter), or the shares are
unlisted, the net capital gain (selling price less cost or
adjusted basis), if any, is subject to the capital gains
tax computed as follows:
5% on first P100,000 net capital gain; and
10% on any amount in excess of P100,000
SHARES OF DOMESTIC
CORPORATION
CGT return is filed within 30 days from date of sale.
Every sale must be covered by a separate CGT return
and the tax paid upon filing of the return.
All transactions during the year are consolidated and
the annual return shall be filed not later than April 15
of the following year, but only one P100,000 is subject
to 5% and the balance of net capital gain for the year
is subject to 10%.
Net capital gain = Total capital gains from sales of
shares of domestic corporation during the year less
total capital losses during the same year.
CORPORATION
Regardless of holding period, the entire gain
or loss is taxable or deductible.
INTEREST INCOME
TYPES OF INTEREST INCOME
Subject to FWT: Interest income on bank deposits, deposit
substitutes, trust and other similar arrangements
20% FWT peso deposit with bank
7.5% FWT foreign currency deposit with OBU/FCDU
NOT subject to FWT but subject to global tax system: All other
interest income or financing income not covered above
Exempt income:
Long-term deposit or investment (5 years or more) by individuals in
the form of trust funds, deposit substitutes, IMA and other
investments prescribed by BSP
Taxable income:
Preferential tax rate Pre-termination of long-term deposit by
individual : 20%, 1- less than 3 yrs; 12%: 3 yrs-less than 4 yrs; 5%:
4 yrs-less than 5 yrs); and interest on foreign loan (20%)
Regular tax rate All other cases
TAX ON OBU/FCDU
Final tax on interest income from loans to
resident borrower is a direct liability of FCDU
Failure of local borrower to withhold and remit
the final withholding tax does not exempt
OBU/FCDU on onshore interest income (ING Bank v
CIR, 2005).
The withholding agent-borrower may also be
assessed deficiency withholding tax as penalty
for failure to withhold (RCBC v. CIR, CTA Case 2004).
DIVIDEND INCOME
REQUISITES FOR DIVIDEND DECLARATION
Presence of positive retained earnings
No prohibition to declare dividend in loan agreement
Declaration of dividend by Board of Directors
TYPES OF DIVIDENDS
Taxable
Cash dividend
Property dividend
Exempt
Stock dividend (except when there is change in proportionate
interest among stockholders, or there is subsequent cancellation or
redemption of shares declared as stock dividend, which is
essentially equivalent to cash dividend)
DIVIDEND INCOME
Intra-corporate dividend: Exempt from tax
Corporation paying dividend: Domestic corporation
Recipient of dividend: Another domestic corporation or resident
foreign corporation
Tax-sparing provision
If country of residence of the foreign corporation does not impose
income tax on dividend paid by a domestic corporation, impose 15%
FWT only
DIVIDEND INCOME
OTHER INCOME
Income from any source whatever
EXCLUSIONS
Miscellaneous items
Income of foreign government
Income of government or its political subdivisions from any public utility
or exercise of governmental function
COA alleged that DBP is actual owner of the trust fund and its income
because:
DBP made the contribution to the Fund
Trustees of the Fund are merely administrators
DBP employees only have an inchoate right to the Fund
DBP responded that the Trustees received and collected income and profit
from the Fund and they maintained separate books for that purpose. The
principal and income will not revert to DBP, even if trust is subsequently
modified or terminated.
SC ruled that the beneficiaries of the Fund are the DBP officials and
employees who will retire. It is not always necessary that the beneficiaries
should be named or even be in existence at the time the trust is created in
his favor, provided they are sufficiently certain or identifiable.
The Salary Loan Program did not terminate the trust to the Funds trustee.
That the DBP Board of Directors confirms the approval of the SLP by the
Funds trustees does not make the fund property of DBP (DBP v. COA, 2004).
EXCLUSIONS
Miscellaneous items
Prizes and awards
In recognition of religious, charitable, artistic, literary
achievement, etc. (He did not enter contest and is not
required to render substantial future services)
Granted to athletes in local and international sports
competitions, sanctioned by their national sports associations
GAIN v. INTEREST
Gains cannot include interest, since it clearly refers to gains from the sale
of bonds, debentures and other certificates of indebtedness. Whereas the
term gains includes interest in its general sense, this rule cannot be
applied to Section 32(B)(7)(g) of the Tax Code in the specific sense.
Section 32(A) of the Tax Code defines gross income and it is clear that
there is a distinction between gains derived from dealings in property and
interests. Gains realized from the sale or exchange or retirement of
bonds, debentures and other certificate of indebtedness would fall under
the category of gains derived from dealings in property. On the other
hand, interests would include interest from bonds, debentures and other
certificate of indebtedness. Only citizens, resident aliens and non-resident
aliens engaged in trade or business are exempt from income tax on interest
from long-term deposit or investment. On the other hand, domestic and
resident foreign corporations are subject to a 20% final tax on such interest.
If Congress intended to exempt interest from bonds, debentures and other
certificates of indebtedness under Section 32(B)(7)(g) of the Tax Code, it
would have done so in clear and specific terms (Nippon Life Insurance
Company vs. Commissioner, CTA Case No. 6142, Feb 4, 2002). After all,
exemptions are construed strictly against the taxpayer and liberally in favor
of the government.
DE MINIMIS BENEFITS
EXEMPT DE MINIMIS BENEFITS, REGARDLESS OF RECIPIENT
(RANK AND FILE, OR MANAGERIAL OR SUPERVISORY)
DE MINIMIS BENEFITS
EXEMPT ASSOCIATIONS
The phrase any of their activities conducted for profit does not
qualify the word properties.-- The phrase any of their activities conducted
for profit does not qualify the word properties. This makes income from the
property of the organization taxable, regardless of how that income is used whether
for profit or for lofty non-profit purposes. Thus, the income derived from rentals of
real property owned by the Young Mens Christian Association of the Philippines, Inc.
(YMCA), established as a welfare, education and charitable non-profit corporation, is
subject to income tax. The rental income cannot be exempted on the solitary but
unconvincing ground that said income is not collected for profit but is merely
incidental to its operation. The law does not make a distinction. Where the law does
not distinguish, neither should we distinguish. Because taxes are the lifeblood of the
nation, the Court has always applied the doctrine of strict interpretation in construing
tax exemptions. YMCA is exempt from the payment of property taxes only but not
income taxes because it is not an educational institution devoting its income solely for
educational purposes. The term educational institution has acquired a well-known
technical meaning. Under the Education Act of 1982, such term refers to schools.
The school system is synonymous with formal education which refers to the
hierarchically structured and chronologically graded learnings organized and provided
by the formal school system and for which certification is required in order for the
learner to progress through the grades or move to higher levels (Commissioner vs.
Court of Appeals and YMCA of the Phils., G.R. No. 124043, Oct. 14, 1998).
DEDUCTIONS
KINDS OF DEDUCTIONS
Itemized Deductions
Optional Standard Deductions
Special Deductions
ITEMIZED DEDUCTIONS
DEDUCTIONS
BUSINESS EXPENSES
DEDUCTIONS
An expense is ordinary when it connotes a payment, which is
normal in relation to the business of the taxpayer and the
surrounding circumstances.
An expense is necessary where the expenditure is appropriate or
helpful in the development of taxpayers business or that the same is
proper for the purpose of realizing a profit or minimizing a loss.
P9.4 M paid in 1985 for advertising a product was staggering
incurred to create or maintain some form of goodwill for the
taxpayers trade or business or for the industry or profession of
which the taxpayer is a member.
Goodwill generally denotes the benefit arising from connection and
reputation, and efforts to establish reputation are akin to acquisition
of capital assets. Therefore, expenses related thereto are not
business expenses but capital expenditures (CIR vs. General Foods Phi.,
GR No. 143672, Apr. 24, 2003).
DEDUCTIONS
TEST OF REASONABLENESS OF BONUS
There is no fixed test for determining the reasonableness of a
given bonus as compensation. This depends upon many factors,
one of them being the amount and quality of the services performed
with relation to the business.
Other tests suggested are payment must be made in good faith, the
character of the taxpayers business, the volume and amount of its
net earnings, its locality, the type and extent of the services
rendered, the salary policy of the corporation, the size of the
particular business, the employees qualifications and contributions
to the business venture, and general economic conditions.
However, in determining whether the particular salary or
compensation payment is reasonable, the situation must be
considered as a whole. Ordinarily, no single factor is decisive (C.M.
Hoskins & Co., Inc. vs. Commissioner, L-24059, Nov. 28, 1969; Pacific Banking Corp. vs.
Commissioner, CTA Case 1667, Oct 29, 1970).
Bonuses that are out-and-out gifts, are gratitude and are not deductible.
DEDUCTIONS
Legal and accountants fees for prior years were not billed in
corresponding years (1984-1985). It was paid by taxpayer in
succeeding year (1986) when it was billed by the lawyer and
accountant. Taxpayers uses accrual method of accounting.
Accrual of income and expense is permitted when the all events
test has been met. This test requires (1) fixing a right to income or
liability to pay, and (2) the availability of reasonably accurate
determination of such income or liability. It does not, however,
demand that the amount of income or liability be known absolutely; it
only requires that a taxpayer has at its disposal the information
necessary to compute the amount with reasonable accuracy, which
implies something less than an exact or completely accurate
amount.
Moreover, deduction takes the nature of tax exemption; it must be
construed strictly against the taxpayer (Commissioner vs. Isabela Cultural
Corporation, G.R. No. 172231, Feb. 12, 2007).
DEDUCTIONS
Entertainment, amusement and recreation expenses are subject to
limitation
% of net sales for sellers of goods
1% of net sales for sellers of services
Club dues for membership in social or athletic clubs to promote
business of corporation paid by the corporation are deductible from
gross income. However, they will be treated as fringe benefits
subject to FBT on the part of the employer. FBT paid by employer is
deductible as business expense of the corporation.
Rental expenses include leasehold acquired for business purposes
and cost of improvements introduced by lessee to be allocated over
the term of the lease. Realty taxes paid by lessee for business
property is part of rental expenses.
DEDUCTIONS
Directors Fees
If not officer or employee of corporation, report it as other income
subject to 10% EWT.
If director is also an officer of the corporation, apply CWT on
compensation income upon the directors fees, together with
salaries.
Commission Income
If there is no employer-employee relationship between broker
and payor of income, treat it as business income subject to
10/15% EWT.
If there is employer-employee relationship, commission income
is treated as part of CWT on compensation income.
DEDUCTIONS
INTEREST EXPENSE
1.
2.
3.
4.
5.
DEDUCTIONS
Deficiency or delinquency interest
Deficiency or delinquency interest on unpaid taxes is
not deductible as tax, but taxpayer is allowed to
deduct the same as interest.
DEDUCTIONS
TAXES
DEDUCTIONS
The word taxes means taxes proper and no deduction
should be allowed for amounts representing interest,
surcharge or penalties. Interest on taxes is not
deductible as taxes, but as an item of interest.
Fines and penalties for violations of law are not
deductible as taxes.
Only the person upon whom taxes are imposed may
claim them as deduction, except: (1) Taxes upon an
individual upon his interest as shareholder of corporation
which are paid by corporation without reimbursement;
and (2) Corporate bonds or other obligations containing
a tax-free covenant clause, the corporation paying the
tax or any part of it for someone else (Sec. 80, RR 2).
DEDUCTIONS
DEDUCTIBLE TAXES
All taxes, national and local, paid or accrued during the year in
connection with trade, business or exercise of profession is
deductible. Examples: professional tax, documentary stamp
tax, other percentage tax, excise tax, real property tax, etc.
NON-DEDUCTIBLE TAXES
1. Philippine income tax
2. Foreign income tax
3. Estate and donors taxes
4. Special assessments on real property
5. Electric energy consumption tax under B.P. 36.
6. VAT
Foreign income tax paid may be credited against the Phil income tax
due, subject to limitation (e.g., Federal income tax of M Pacquiao).
DEDUCTIONS
LOSSES (Rev. Regs. No. 12-77 and Rev. Regs. No. 10-79)
1. The loss must be that of the taxpayer;
2. The loss is actually sustained and charged off within the taxable
year;
3. The loss is evidenced by a closed and completed transaction
(fixed by identifiable events or when insurance recovery was
definitely established);
4. The loss is not claimed as a deduction for estate tax purposes;
5. The loss is not compensated for by insurance or otherwise;
6. In the case of an individual, the loss must be connected with his
entered into for profit though not connected with his trade,
DEDUCTIONS
Bad Debt Theory
Loss from theft or embezzlement occurring in the year and
discovered in another year is deductible in the year in which
sustained. However, where the taxpayer had no means of
determining the actual date of embezzlement, a loss was
sustained in the year of discovery.
The rule is now modified by the bad debt theory, which holds
that since embezzlement creates a debtor-creditor relationship, a
loss is deductible as bad debt in the year the right of recovery
becomes worthless.
NOLCO
Net operating loss of one year may be carried over and
deducted from gross income for the next succeeding 3 years,
provided that no substantial change in the ownership of the
business or enterprise (not less than 75%) takes place.
DEDUCTIONS
BAD DEBTS
DEDUCTIONS
In the case of banks, the BSP thru the Monetary Board
shall ascertain the worthlessness and uncollectibility of
the bad debts and approve in writing the writing off of
bad debts from the books, without prejudice to the CIRs
determi-nation of the worthless and uncollectibility of
debts.
In no case shall a receivable from an insurance or surety
company be written off from taxpayers books and
claimed as bad debt deduction, unless such company
has been declared closed due to insolvency or for any
similar reason by the Insurance Commission.
DEDUCTIONS
TAX BENEFIT RULE
The taxpayer is obliged to declare as taxable income
any subsequent recovery of bad debts in the year
they were collected to the extent of the tax benefit
enjoyed by the taxpayer when the bad debts were
written off and claimed as deduction from gross
income.
It also applies to taxes previously deducted from
gross income but which were subsequently refunded
or credited by the BIR. He has to report income to the
extent of the tax benefit derived in the year of
deduction.
DEDUCTIONS
DEPRECIATION
1. The allowance for depreciation must be reasonable;
2. It must be for property arising out of its use in the trade or
business, or out of its not being used temporarily during the year;
3. It must be charged off during the taxable year from the taxpayers
books of accounts;
4. Depreciation shall be computed on the basis of historical cost or
adjusted basis. While financial accounting allows computation
based on appraised value, recovery of investment for tax
purposes shall be limited to historical cost.
Depreciation for the year = Cost less salvage value divided by the
estimated useful life (number of years) of the asset
Book value of the asset = Cost or adjusted basis less accumulated
depreciation.
DEDUCTIONS
CHARITABLE CONTRIBUTIONS
1. The charitable contribution must actually be paid or made to the
Philippine government or any political subdivision thereof exclusively
for public purposes, or any of the accredited domestic corporation or
association specified in the Tax Code;
2. It must be made within the taxable year;
3. It must not exceed 10% (individual) or 5% (corporation) of the
taxpayers taxable income before charitable contributions (whether
deductible in full or subject to limitation);
4. It must be evidenced by adequate receipts or records; and
5. The amount of charitable contribution of property other than
money shall be based on the acquisition cost of said property (Sec.
34(H), NIRC). The limitation is imposed to prevent abuse of
donating paintings and other valuable properties and claiming
excessive deductions therefrom.
DEDUCTIONS
D. Optional Standard Deduction
Privilege is available only to citizens or resident aliens as
well corporations subject to the regular corporate income
tax; thus, non-resident aliens and non-resident foreign
corporations are not entitled to claim the optional
standard deduction.
Standard deduction is optional; i.e., unless taxpayer
signifies in his/its return his/its intention to elect this
deduction, he/it is considered as having availed of the
itemized deductions;
Such election when made by the qualified taxpayer is
irrevocable for the year in which made; however, he can
change to itemized deductions in succeeding year(s);
DEDUCTIONS
DEDUCTIONS
NON-DEDUCTIBLE ITEMS
PERSONAL EXEMPTIONS
RA 8424: Jan 1, 1998
Single and estate or trust
P20,000
Head of family P25,000
Married P32,000
For each child, not to
exceed 4 P8,000
PERSONAL EXEMPTIONS
Status-at-the-end-of-the-year rule
Status-at-the-end-of-the-year rule which means that whatever is
the status of the taxpayer at the end of the calendar year shall be
used for purposes of determining his personal and additional
exemptions generally applies. A change of status of the taxpayer
during the taxable year generally benefits, but does not prejudice,
him. Thus, if he marries at the end of the year, he shall be entitled
to personal exemption of P32,000/P50,000. If a child is born at any
time during the calendar year, even on the last day of the year, the
taxpayer is entitled to claim his child as a dependent entitling him to
deduct additional exemption of P8,000/P25,000 for that year. On
the other hand, if one of his qualified dependent children dies during
the year, the law considers that the child died on the last day of the
year; hence, he is entitled to claim the full amount of additional
exemption of P8,000/P25,000 for the deceased child for the year.
FRINGE BENEFITS
Gross compensation
income less PAE times
graduated rates
Gross compensation
income of employees of
RHQ, ROHQ,
OBU/FCDU, and
petroleum contractors
times 15%
Grossed-up monetary
value of fringe benefits
times taxable rate times
32% = FBT
Gross sales
Less: Cost of sales or services
Gross income
Multiplied by: 2%
MCIT
Gross income
Less: Deductions
Net income
Multiplied by: 35%
RCIT
Less: CWT
Balance
B. SHARES OF STOCKS OF
DOMESTIC CORPORATION
B. Dividend
D. Rental income
NRFC
25% x gross income: NR
cinema film owner, lessor or
distributor
4.25% x gross income: NR
owner or lessor of vessels
7.5% x gross income: NR
lessor of aircraft, machineries
and other equipment
NATURE OF ASSET
ORDINARY ASSET
EXCHANGE OF PROPERTY
GENERAL RULE
ACCOUNTING METHODS
Cash method
Accrual method
All events test; amounts received in advance are not treated as
revenue of the period in which received but as revenue of future
periods in which earned (Manila Mandarin Hotels vs. CIR, CTA Case No.
5046, Mar 24, 1997).
Installment sales
Sale on the installment plan
Initial payments do not exceed 25% of GSP
Percentage of completion
Crop year method
Period
Q1 Return
Q2 Return
Q3 Return
Annual Return
WITHHOLDING TAX
An income payment is subject to the expanded
withholding tax, if the following conditions concur:
a. An expense is paid or payable by the taxpayer,
which is income to the recipient thereof subject to
income tax;
b. The income is fixed or determinable at the time of
payment;
c. The income is one of the income payments listed in
the regulations that is subject to withholding tax;
d. The income recipient is a resident of the Philippines
liable to income tax; and
e. The payor-withholding agent is also a resident of the
Philippines.
WITHHOLDING TAX
WITHHOLDING TAX
- 10%
- 15%
3. Rental income
- 10%
- 15%
Real properties
Personal properties of P10,000 per payment; P10,000
shall not apply when accumulated rental to same
lessor exceeds or is reasonably expected to exceed
P10,000 within a year
Poles, satellites and transmission facilities
Billboards
- 5%
- 5%
- 5%
- 5%
WITHHOLDING TAX
4. Gross payments to resident individuals and corporate cinematographic film owners, lessors, or distributors
5. Gross payments to contractors
6. Income distribution to beneficiaries
7. Income payments to certain brokers and agents
8. Income payments to partners of general professional
partnerships:
If gross income for current year exceedsP720,000
If otherwise
9. Professional fees paid to medical practitioners
If gross income for current year exceedsP720,000
If otherwise
10. Gross additional payments to government personnel from
importers, shipping and airline companies, or their
agents
11. One-half of gross amounts paid by any credit card
company in the Philippines
5%
2%
15%
10%
- 15%
- 10%
- 15%
- 10%
- 15%
-
1%
WITHHOLDING TAX
- 1%
- 2%
- 1%
- 2%
10%
5%
1%
1%
1%
- 10%
- 25%
- 32%
REFUND
A taxpayer must do two things to be able to successfully make a
claim for the tax refund of withholding tax on compensation income:
(a) declare the income payments it received as part of its gross
income and (b) establish the fact of withholding.
The amounts of total taxes withheld for each redundant employees
cannot be verified against the Summary of Gross Compensation and
Taxes Withheld for 1995 due to the fact that this summary
enumerates the amounts of income taxes withheld on per
district/area basis. The SGV certification cannot be appreciated in
PLDTs favor as the courts cannot verify such claim. Besides, the
documents from which SGV traced the Alpha List to the Monthly
Remittance Returns of Income Taxes have not been presented to
the court, and this is fatal to PLDT . Also, the cash salary vouchers
for the rank and file employees do not have acknowledgment
receipts (PLDT v. CIR, GR 157264, Jan 31, 2008).
REFUND
CTA found above requisites were satisfied. Findings of facts of CTA are
entitled to great weight and will not be disturbed on appeal, unless it is
shown that the lower court committed gross error in the appreciation of
facts.
Failure of respondent to indicate its option in its annual ITR to avail itself of
either tax refund or tax credit is not fatal to its claim for refund.
Sec. 76, NIRC offers two options: refund or tax credit. The options are
alternative and the choice of one precludes the other. However, in Philam Asset
Mgt v. CIR, this Court ruled that failure to indicate a choice will not bar a valid
request for refund, should this option be chosen by the taxpayer later on. The
requirement is only for the purpose of easing tax administration, particularly the
self-assessment and collection aspects.
REFUND
Failure of respondent to present in evidence the 1998 ITR is not fatal to its
claim for refund.
CTA denied claim for 1997 tax credit of PERF because it failed to submit its 1998
ITR.
PERF attached its 1998 ITR to its motion for reconsideration. The ITR is part of
the records of the case and clearly showed that income taxes were not claimed
as tax credit in 1998.
Technicalities should not be used to defeat substantive rights, especially those
that have been held as a matter of right.
The CAs reliance on Rule 132, Sec. 34 of Rules of Evidence is misplaced. This
provision should be taken in the light of RA 1125; proceedings therein shall not
be governed strictly by technical rules of evidence.
No one shall unjustly enrich oneself at the expense of another. This applies not
only to individuals but to the State as well. In the field of taxation where the State
exacts strict compliance upon its citizens, the State must likewise deal with
taxpayers with fairness and honesty. The harsh power of taxation must be
tempered with evenhandedness (CIR v. PERF Realty Corp., GR 163345, July 4, 2008).
REFUND
Tax refunds or credits are not founded principally on
legislative grace but on the legal principle which
underlies all quasi-contracts, abhorring a persons unjust
enrichment at the expense of another. The dynamic of
erroneous payment of tax fits to a tee the prototypic
quasi-contract, which covers not only mistake in fact but
also mistake in law. The government is not exempt from
the application of solutio indebiti. Indeed, the taxpayer
expects fair dealing from the government, and the latter
has the duty to refund without any unreasonable delay
what it has erroneously collected (CIR v. Fortune Tobacco Corp, GR
167274, July 21, 2008).
END OF PRESENTATION
Atty. Vic C. Mamalateo
Mobile: 0918-9037436
Email: vicmamalateo@yahoo.com
vic.mamalateo@vcmlaw.com.ph