Q: A regul

ati
on was passed by t
he BI
R exempt
ing or t
her
efor
esubj
ectt
oco
rpor
atei
ncomet
ax.(
Oña,e
talv
.CI
R,GR L-
excl
udi
ngi
ncomeofaRC deri
ved f
rom sourcesout
sidet
he 19342,May25,1972)
Phi
lippi
nes.I
sitval
id?
A:No,s
uchr
egul
ati
oni
scont
rar
ytol
aw i
npar
tic
ulart
heNI
RC.I
n
or
derf
orar
egul
ati
ont
obeval
ids
uchmus
tbei
nhar
monywi
thl
aw.

Q:Assumi
ng t
he BI
R changed t
he t
ax base ofa RC f
rom
t
axabl
eincomet
ogrossi
ncome,i
sthatval
id?
A:No,t
heBI
Rcanno
tgobe
yondt
hes
our
cesoft
hel
aw.

Q:I
sthe i
ncome of an overs
eas worker deri
ved abroad
t
axabl
e?
A:No,i
tisnol
ongert
axabl
eappl
yingt
her
ulet
hati
ncas
eofNRC,
onl
yinc
omeder
ivedf
rom s
our
ceswi
thi
nthePhi
li
ppi
nesi
staxabl
e.
Q:Pascual and Dragon bought 2 parcel
s of l
and f
rom
Q:Brot
hersA,B andC borrowedas
um ofmoneyf
rom t
hei
r Bernardi
no and 3f
rom Roque.Thereaf
ter
,thefirs
t2were
f
ather whi
ch amountt
oget
her wi
tht
hei
r personalmoni
es sol
dto Mei
reni
rDevel
opmentand 3t
o Reyesand Samson.
wasusedbyt
hem f
ort
hepurposeofbuyi
ngrealpropert
ies. They di
vided t
he profit
s bet
ween t
he 2 oft
hem.The CI
R
The realpropert
ies t
hey bought were l
eased t
o vari
ous cont
endedt
hatt
heyf
ormed an unregi
steredpart
ners
hipor
t
enant
s.TheBI
R demanded t
hepaymentofi
ncomet
ax on j
ointvent
uret
axabl
easa corporat
ion undert
heCodeand
corporat
ions, real es
tat
e deal
er’
stax, and corporat
ion i
tsi
ncomei
ssubj
ectt
otheNI
RC.Deci
de.
res
idencet
ax.However
,A,B andC seekt
oreverset
hel
ett
er A:No,s
har
ingo
fre
tur
nsdoesno
tini
tsel
fes
tabl
ishapar
tner
shi
p
ofdemandandbeabsol
vedf
rom t
hepaymentoft
het
axesi
n whe
thero
rno
ttheper
sonss
har
ingt
her
einhaveaj
ointorc
ommon
ques
tion.Aret
heysubj
ectt
otaxoncorporat
ions? r
ighto
rint
eres
tint
hepr
oper
ty.(
Art
.1769,NCC)I
nthepr
esent
A:Yes
,"Cor
por
ati
ons
"st
ric
tlys
peaki
ngar
edi
sti
nctand di
ffer
ent c
ase, t
her
e i
s c
lear e
videnc
e o
fco-
owne
rshi
p be
twe
en t
he
f
rom "
par
tner
shi
ps"
. When t
he NI
RC i
ncl
udes "
par
tne
rshi
ps" pe
tit
ione
rs.Ther
eisnoadequat
ebas
ist
osuppor
tthepr
opos
iti
on
among t
he ent
iti
ess
ubj
ectt
othe t
ax on "
cor
por
ati
ons
",i
tmus
t t
hat t
heyt
her
eby f
ormed an unr
egi
ster
ed par
tner
shi
p.The 2
al
ludet
oor
gani
zat
ionswhi
char
eno
tnec
ess
ari
ly"
par
tner
shi
ps"i
n i
sol
atedt
rans
act
ionswhe
ret
heypur
chas
edpr
oper
tiesands
oldt
he
t
het
echni
cals
ens
eoft
het
erm.Asdefinedi
ntheNI
RC "
thet
erm s
ameaf
ew year
sther
eaf
terdi
dno
tther
ebymaket
hem par
tner
s.
c
orpor
ati
on i
ncl
udes par
tner
shi
p, no mat
ter ho
w c
reat
ed o
r The t
rans
act
ions wer
eis
olat
ed. The c
har
act
er of habi
tual
ity
or
gani
zed.
"Thi
squal
if
yinge
xpr
ess
ionc
lear
lyi
ndi
cat
est
hataj
oint pec
uli
art
obus
ines
str
ans
act
ionsf
ort
hepur
pos
eofgai
n wasno
t
vent
ureneedno
tbeunder
taken i
n anyoft
hes
tandar
dsf
orm,or pr
esent
.(Pas
cualandDr
agonv
.CI
R,GR78133,Oc
t.18,1988)
c
onf
ormi
tywi
tht
heus
ualr
equi
rement
soft
hel
aw onpar
tner
shi
ps,
i
n or
dert
hatonec
oul
dbedeemedc
ons
tit
utedf
ort
hepur
pos
esof Q:On2Mar
.1973,Joet
ransf
erredhi
sri
ght
sundercont
ract
t
het
axon c
orpor
ati
ons
.(Evangel
ist
av.CI
R,GR L-
9996,Oc
t.15, wi
th Ort
igasCo.t
o hi
s4 chi
ldren t
o enabl
ethem t
o bui
ld
1957) res
idencesont
hel
ots.TCTswerei
ssued.I
nst
eadofbui
ldi
ng
houses,hi
s chi
ldren sol
dthem t
o Wal
led Ci
ty Securi
ties
Q:Jul
iadi
edl
eavi
ngashei
rshersurvi
vingspouse,Lorenzo Corporat
ion and Ol
ga Cruz Canda.The BI
R requi
red t
he
and her five chi
ldren. A set
tlement of t
he es
tat
e was chi
ldren t
opaycorporat
eincomet
axundert
het
heoryt
hat
i
nst
itut
edi
ntheCFI
.Theproj
ectpart
iti
onwasapprovedby t
hey f
ormed an unregi
stered part
ners
hip orj
ointvent
ure.
t
hecourthowever
,therewasnoat
temptmadet
odi
videt
he Aret
heyl
iabl
eforcorporat
eincomet
ax?
propert
ies l
ist
ed.I
nst
ead,t
he propert
ies remai
ned under A:No,t
he c
hil
dren ar
eco
-owner
ssi
ncet
hey di
d no
tfor
m a
t
he managementofLorenzo who used sai
d propert
ies by par
tner
shi
p.I
tisani
sol
atedac
twhi
chs
howsnoi
ntent
iont
ofor
ma
l
easi
ng or sel
ling t
hem and i
nves
ting t
he i
ncome deri
ved par
tner
shi
p.To r
egar
dthe c
hil
dren ashavi
ng f
ormed a t
axabl
e
t
heref
rom.From sai
dinves
tment
sand propert
ies,t
hehei
rs unr
egi
ster
ed par
tner
shi
p woul
dres
ulti
n oppr
ess
ivet
axat
ion and
deri
ved i
ncome.TheBI
R deci
ded t
hatt
hehei
rsf
ormed an c
onfir
m t
he di
ctum t
hatt
he po
wert
otax i
nvol
vest
he po
wert
o
unregi
steredpart
ners
hipandt
heref
oresubj
ectt
ocorporat
e des
tro
y.I
tappear
sthatt
heydec
idedt
osel
litaf
tert
heyf
oundi
t
i
ncome t
ax.They prot
est
ed t
he assessmentand asked f
or e
xpens
ivet
obui
ld hous
es.Thedi
vis
ion oft
hepr
ofitwasme
rel
y

reconsi
derat
ion al
legi
ng t
hat t
hey are co-
owners of t
he i
nci
dent
alt
othedi
ssol
uti
onoft
hec
o-o
wner
shi
pwhi
chwasi
nthe

propert
ies i
nheri
ted and t
he profit
s deri
ved f
rom t
he nat
ureoft
hingsat
empor
arys
tat
e.(
Obi
ll
os,Jr
.v.CI
R,GRL-
68118,
Oc
t.29,1985)
t
ransact
ions. Are t
he hei
rs of t
he decedent subj
ect t
o
corporat
eincomet
ax?
Q:Assumi
ngMr
.R wi
thdrawsmoneyf
rom hi
sbankaccount
,
A:Yes
,whi
le as a r
ule,c
o-o
wner
shi
pist
ax e
xempt
,the c
o-
i
siti
ncome?
o
wner
shi
pofi
nher
itedpr
oper
tiesi
saut
omat
ical
lyc
onver
tedi
ntoan
A:No,bec
aus
einc
omei
sot
hert
hanamer
ere
tur
nofc
api
tal
.
unr
egi
ster
ed par
tner
shi
pthe moment s
aidc
ommon pr
oper
ties
and/
ort
hei
ncomeder
ivedt
her
efr
om ar
eus
edasc
ommonf
undwi
th
Q:Are securi
ty advances and securi
ty deposi
ts pai
d by a
i
ntentt
opr
oduc
epr
ofit
s.I
faf
ters
uchpar
tit
ion,eac
hhei
ral
lowshi
s
l
esseet
oal
essorconsi
deredi
ncomef
ort
axpurposes?
s
har
eto be hel
dinc
ommon wi
th hi
sco-
hei
rs unde
ra s
ingl
e
A:No,t
heamountr
ecei
vedbyt
hel
ess
orass
ecur
ityadvanc
eso
r
managementt
obeus
edwi
tht
hei
ntentofmaki
ngpr
ofitt
her
ebyi
n
depos
itswi
lle
vent
uall
yber eturnedtothel
essees
,hencet
helessor
pr
opor
tion t
o hi
sshar
e,t
her
ecan be no doubtt
hat
,even i
fno
didnotear
ngainorprofitt
herefrom.(
Tour
istTradeandTrave
lv .
doc
umentori
nst
rumentwer
eexec
uted f
ort
he pur
pos
e,f
ort
ax CIR,CTACaseNo.4806,Jan.19,1996)
pur
pos
es,at l
eas
t,an unr
egi
ster
ed par
tner
shi
pisf
ormed and
 wil
lnotaffec
thi sobli
gati
ontomaker es
tit
uti
on.Paymentofthet
ax
Q:Supposet
hegai
norprofiti
sint
henat
ureofpropert
yor i
sa c i
vilobligation i
mposed by l
aw whilerest
itut
ion i
sa ci
vil
i
nki
nd,canwenotconsi
deri
tast
axabl
egai
n? l
iabi
li
tyarisi
ngf rom acri
me.(1995BarQues tion)
A:UnderSec
.32A[
1]c
ompens
ati
onf
ors
ervi
cesc
anbei
nwhat
eve
r
for d.Ther
m pai efor
ewhe therpai
dinc
ash,ki
nd,pr
oper
ty,s
toc
k Q:I
n1990,Navalboughtal
otf
orP1mi
lli
oni
nasubdi
visi
on
andot
herfor
m,suc
hi st
axable. wi
tht
hei
ntent
ionofbui
ldi
nghi
sres
idenceoni
t.I
n1994,he
abandonedhi
spl
anbecauset
hesurroundi
ngareabecamea
Q:Congressenact
ed a l
aw i
mposi
ng a 5% t
ax on t
hegross depressed area and l
and val
ues i
nthe subdi
visi
on went
recei
pts ofcommon carri
ers.The l
aw doesnotdefine t
he down;i
nst
ead,hesol
ditf
orP800,
000.Att
het
imeoft
hesal
e,
t
erm “
grossrecei
pts.
”ExpressTransportabuscompanyhas t
hezonalval
uewasP500,
000.I
sthel
and acapi
talassetor
t
ime deposi
tswi
th ABC Bank.I
n 2007,ExpressTransport anordi
naryasset
?
earned P1 Mi
lli
on i
nteres
t,af
ter deduct
ing t
he 20% final A:Thel
andi
sac
api
talas
setbec
aus
eiti
snei
therf
ors
alei
nthe
wi
thhol
ding t
ax f
rom i
tst
ime deposi
tswi
tht
he bank.The or
dinar
ycour
seofbus
ines
sno
ra pr
oper
ty us
ed i
nthet
radeor
BI
R want
stocol
lecta5% grossrecei
ptst
axon t
hei
nteres
t bus
ines
soft
het
axpayer
.(Se
c.39[
A] RC)(
,NI 1995BarQues
tion)
i
ncome ofExpress Transport wi
thout deduct
ing t
he 20%
finalwi
thhol
dingt
ax.I
stheBI
R correct
? Q:I
n Jan.1970,Juan bought1hect
areofagri
cul
turall
and
A:Yes
.Thet
erm“
gros
srec
eipt
s”i
sbr
oadenought
oinc
ludei
ncome i
n Laguna f
or P100,
000.Thi
s propert
y has a currentf
air
notphysic
al l
yr ende redbutc onstr
uctivel
yr ec
eivedbyt het axpayer. marketval
ueofP10mi
lli
on i
n vi
ew oft
hecons
truct
ion ofa
Afterall
,t heamountwi t
hhel dispai dt othego vernmenton i t
s concret
e road t
raversi
ng t
he propert
y. Juan agreed t
o
behalf
,ins ati
sfac ti
onofi t
swi t
hholdingtaxes.Thef actt hatitdid exchange hi
s agri
cul
tural l
ot i
n Laguna f
or a onehal
f
notactuallyrec eivet heamountdoesno talterthef actt hatitis hect
areres
ident
ialpropert
ylocat
edi
nBat
angas,wi
thaf
air
remitt
edf oritsbenefiti ns atis
facti
on ofitstaxobl i
gations.Since marketval
ueofP10mi
lli
on,ownedbyAl
phaCorporat
ion,a
theincomei swi t
hhel disani ncomeo wnedbyExpr essTr ansport, domes
tic corporat
ion engaged i
nthe purchase and s
ale of
the same f orms par t of i
t s gros
sr e
ceipts.(CIR v .Bank of realpropert
y.Al
pha Corporat
ion acqui
red t
hepropert
yin
Comme
rce
,GR149636,June8,2005)(
2006BarQues
tion) 2007f
orP9mi
lli
on.Whati
sthenat
ureoft
herealpropert
ies
exchangedf
ort
axpurposes-capi
talorordi
naryasset
?
A:Theonehe
ctar
eagr
icul
tur
all
and o
wned byJuan i
sac
api
tal
asse
tbecauseiti
snotar ealpr
opertyusedintradeorbus
iness.The
one-
halfhect
areresi
dentialproper
tyownedbyAl phaCorpor
ation
isanordinar
yas s
etbecausetheo wnerisengagedinthepurchase
and sal
eo frealproper
t y
.(Sec.39,NI RC;RR 7- 03)(
2008 Bar
Ques
tion)

Q:A,adoct
orbyprof
essi
on,sol
dint
heyear2000aparcelof
Q:Lao i
sa bi
g-t
ime swi
ndl
er.I
n one year he wasabl
eto l
andwhi
chheboughtasaf
orm ofi
nves
tmenti
n1990f
orP1
earn P1Mi
lli
on f
rom hi
sswi
ndl
ingact
ivi
ties.Whent
heCI
R mi
lli
on.Thel
and wassol
dtoB,hi
scol
leagueand atat
ime
di
scoveredhi
sincomef
rom swi
ndl
ing,t
heCI
R assessedhi
m when t
hereales
tat
epri
ceshad gonedown,f
oronl
y oft
he
adefici
encyi
ncomet
axf
orsuch i
ncome.Thel
awyerofLao l
and.Heused t
heproceedst
ofinancehi
stri
ptot
heUni
ted
prot
est
edt
heassessmentont
hef
oll
owi
nggrounds: St
ates.Hecl
aimst
hatheshoul
d notbemadet
opayt
he6%
1.Thei
ncomet
axappl
iesonl
ytol
egali
ncome,nott
oil
legal finalt
axbecausehedi
dnothaveanyact
ualgai
nont
hesal
e.
i
ncome; I
shi
scont
ent
ioncorrect
?
2.Lao'
s recei
ptsf
rom hi
s swi
ndl
ing di
d not cons
tit
ute A:No,t
he6% c
api
talgai
nst
axons
aleofar
ealpr
oper
tyhel
das
i
ncome because he was under obl
igat
ion t
o ret
urn t
he capitalasse ti
si mpos ed on the income pr es
umed t o have been
amounthehad swi
ndl
ed,hence,hi
srecei
ptf
rom swi
ndl
ing real
iz edfr
om thes alewhichi sthefairmar ketvalueorsell
ingpr i
ce
wassi
mil
art
oal
oan,whi
chi
snoti
ncome,becausef
orevery thereof,whicheveri shigher.(Sec.24[D],NI RC)
peso borrowed hehasa correspondi
ng l
iabi
lit
yto pay one Actualgaini sno tr equi
redf ortheimpos i
tionofthetaxbuti ti
st he
peso;and gainbyfictionofl aw whichi staxable.(
2001BarQues ti
on)
3.I
fhe has t
o pay t
he defici
ency i
ncome t
ax assess
ment
t
herewi
llbehardl
yanyt
hingl
eftt
oret
urnt
othevi
cti
msof
t
he swi
ndl
ing.How wi
ll you rul
e on each of t
he t
hree
groundsf
ort
heprot
est
? Q:I
n Jan.1970,Juan bought1hect
areofagri
cul
turall
and
A: i
n Laguna f
or P100,
000.Thi
s propert
y has a currentf
air
1.Sec .32oft heNI RC i nc ludeswi thi nt hepur vie w ofgr os si ncome marketval
ueofP10mi
lli
on i
n vi
ew oft
hecons
truct
ion ofa
allInc omef rom what evers ourceder ived.Henc e,t hei llegal i
tyoft he concret
e road t
raversi
ng t
he propert
y. Juan agreed t
o
incomewi llno tpr ec l
udet hei mpos itionoft heinc o met axt her eon. exchange hi
s agri
cul
tural l
ot i
n Laguna f
or a onehal
f
2.When a t axpayer ac qui r
es ear ni ngs,l awf ul l
yo r unl awf ully
, hect
areres
ident
ialpropert
ylocat
edi
nBat
angas,wi
thaf
air
without t he c ons ensual r e c
ognition,e xpr esso ri mpl ied,of an marketval
ueofP10mi
lli
on,ownedbyAl
phaCorporat
ion,a
obligat i
on t or epayandwi thoutr es tri
ction ast ot hei rdi spos iti
on, domes
tic corporat
ion engaged i
nthe purchase and s
ale of
hehasr eceivedt axabl ei nc ome,e vent houghi tmays ti l
lbec laimed realpropert
y.Al
pha Corporat
ion acqui
red t
hepropert
yin
thathei sno tent i
tledt or etainthemone y,ande vent houghhemay 2007f
orP9mi
lli
on.
sti
llbeadj udgedt or est orei tsequi val ent.Tot reatt heembez zled 1. I
s Juan subj
ect t
o i
ncome t
ax on t
he exchange of
fundsasno tt axabl einc omewoul dpe rpe t
uat ei njustic ebyr el i
eving
propert
y?I
fsowhati
sthet
axbaseandwhati
sthet
axrat
e?
embez zlersoft hedut yo fpayi ngi nc omet axeson t hemone yt hey
2. I
s Al
pha Corporat
ion subj
ect t
oincome t
ax on t
he
enric ht hems elveswi th,byembez zlement ,whi lehone stpeopl epay
exchangeofpropert
y?I
fsowhati
sthet
axbaseandrat
e?
theirt axesone veryc onc eivabl etypeofi nc ome.( Jame sv .U. S.,202
A:
US401[ 1906] )
1.Yes ,in at axable dis
posit
ion ofa r ealpropertyclas
sified as
3.Thedefic ienc yinc omet axas sessmenti sadi re c
tt axi mpos edo n
capit
alas setthet axbas eist hehigherbe t
ween:t hefai
rmar ket
theo wnerwhi c hisane xc iseont hepr i
vileget oear nani nc ome.I t
valueofthepr opertyrec
eivedine xc
hangeandt hefairmarketval ue
willno tne ces sarily be pai d outoft he s ame i nc ome t hatwas
ofthepr opertye xc
hanged.Sinc ethef ai
rmar ketvalueofthet wo
subjec tedt ot het ax.Lao’ sl i
abili
tyt opayt het axi sbas edon hi s
properti
esar ethes ame,thes aidmar ketval
ues houldbetakenas
havi ngr eal i
z edat axabl ei ncomef rom hi ss wi ndl i
ngac ti
viti esand
thet axbasewhi chisP10mi l
lion and t
hei nc
omet axr atei s6%. t
raded i
nthePhi
lippi
neSt
ock Exchangeatt
hepri
ceofP2
(Sec.24[D],NIRC) Mi
lli
on.A dayaf
ter
,hesol
dthesharesofs
tock t
hrough hi
s
2.Yes ,the gainf r
om t hee xchange consti
tut
esan i t em ofgr oss f
avori
teMakat
ist
ockbrokeratagai
nofP200,
000.
income,and bei ngabus ines
si ncome,itmus tber eported int he 1.I
sJohnsubj
ectt
oPhi
lippi
nei
ncomet
axont
hesal
eofhi
s
annualITRofAl phaCo rporati
on.Fr om thepertinenti temsofgr oss sharest
hrough hi
sst
ockbroker?I
she l
iabl
eforany ot
her
income,deduc tions allo
wed by l aw fr
om gr ossi nc ome c an be t
ax?
claimedtoar riveatt hene tinc omewhi chist het axbas efort he
2.I
fJohn di
rect
ly sol
dthe sharest
o hi
sbes
tfri
end,a US
corporat
einc omet axr ateof35%.( Sec
.27[ A]andSe c31,NI RC)
ci
tizen resi
ding i
n Makat
i,ata gai
n of200,
000,i
shel
iabl
e
(
2008BarQues
tion)
f
orPhi
lippi
ne i
ncome t
ax?I
fso whati
sthe t
ax base and
Not
e:Theappl
icabl
etaxr
atet
othec
aseatbari
sst
ill35% s
inc
eit
rat
e?
wastaxedon2007
.Effe
cti
veJanur
ay1,2009,t
hec
orpor
atei
ncome
A:
taxr
ateis30%.
1.No,t hegain on t hes aleo rdi sposition ofs haresofs ocko fa
domes t
icc or
por ati
onhel dasc apitalas setswi l
lno tbes ubj ect
edt o
Q: A corporat
ion, engaged i
n real es
tat
e devel
opment
, incomet axiftheses haress oldar el ist
edandt radedi nt hes tock
execut
ed deeds of sal
e on vari
ous subdi
vided l
ots.One exchange( Sec.24[ C],NI RC) .Ho we ver,thes ell
e riss ubjecttot he
buyer
,af
tergoi
ngaround t
hesubdi
vis
ion,boughtacorner perc ent agetaxof½ of1% oft hegr ossselli
ngpr ic
e.(Se c.127[ A],
l
otwi
th a good vi
ew oft
he surroundi
ng t
errai
n.He pai
d NIRC) .
P1.
2mi
lli
on,andt
het
itl
etot
hepropert
ywasi
ssued. 2.Yes ,thes aleo fshareso fstocksofadomes t
icc or
porationhel das
A yearl
ater
,the val
ue oft
he l
otappreci
ated t
o a market capit al,no tthroughat r
adi ngint hel ocalstocke xchange,i ssubject
val
ue ofP1.
6 mi
lli
on,and t
he buyer deci
ded t
o bui
ld hi
s toc api talgainst axbasedont hene tcapitalgaindur i
ngt het axable
houset
hereon.Uponi
nspect
ion,however
,hedi
scoveredt
hat year .The t ax r ateis 5% f o r a ne tc apitalgai n no te xceeding
ahuget
owerant
ennahad been erect
ed on t
hel
otf
ront
age P100, 000and10% f oranye xcess.Thet axduewoul dbeP15, 000.
t
otal
ly bl
ocki
ng hi
svi
ew.When he compl
ained,t
he real
ty (2008BarQues ti
on)
companyexchanged hi
slotwi
th anot
hercornerl
otwi
th an
equalareabutaffordi
ngabet
tervi
ew.I
sthebuyerl
iabl
efor Q:Manal
o,Fi
lipi
no ci
tizen res
idi
ng i
n Makat
iCi
ty,ownsa
capi
talgai
nst
axont
heexchangeoft
hel
ots? vacat
ion houseand l
oti
n Cal
iforni
a,whi
ch heacqui
red i
n
A:Yes
,thebuyeri
ssubj
ectt
ocapi
talgai
nst
axont
hee
xchangeo
f 2000 f
or P15 mi
lli
on.On Jan.10,2006,he sol
d sai
d real
lotson thebasiso fprevaili
ng fairmar ketvalueo ftheproperty propert
yto Mayaman,anot
herFi
lipi
no res
idi
ng i
n Quezon
transf
erredatthet imeo fthee xchangeo rthefai
rmar ketvalueo f Ci
tyf
orP20mi
lli
on.OnFeb.9,2006,Manal
ofil
edt
hecapi
tal
thepr o
pertyrecei
ved,whi cheverishigher( Se
c.21[e],NIRC).Real gai
nsret
urn and pai
d P1.
2mi
lli
on represent
ing 6% capi
tal
propertytr
ansactionssubjecttoc api
talgainstaxareno tl
imitedt o gai
nst
ax.Si
nceManal
odi
dnotderi
veanyordi
naryi
ncome,
salesbutalsoexchangeso fpr opertyunlessexemptedbyas pe c
ific noi
ncomet
axret
urnwasfil
edbyhi
mfor2006.
provis
ionoflaw.(1997BarQues tion) Af
ter t
he t
ax audi
t conduct
ed i
n 2007,t
he BI
R officer
assessed Manal
ofor defici
ency i
ncome t
ax comput
ed as
f
oll
ows:P5mi
lli
on(
P20mi
lli
onl
essP15mi
lli
on)x35%=P1.
75
mi
lli
on,wi
thoutt
hecapi
talgai
nst
axpai
d bei
ngal
lowed as
Q:I
fthe t
axpayer cons
truct
ed a new resi
dence and t
hen t
ax credi
t.Manal
o consul
ted a reales
tat
ebrokerwho sai
d
sol
dhi
sol
dhouse,i
sthet
ransact
ionsubj
ectt
ocapi
talgai
ns t
hatt
he P1.
2 mi
lli
on capi
talgai
nst
ax s
houl
d be credi
ted
t
ax? f
rom t
he P1.
75 mi
lli
on defici
ency i
ncome t
ax.I
sthe BI
R
A:Yes
,exempt
ionf
rom c
api
talgai
nst
axdoesno
tfindappl
icat
ion officer’
staxass
essmentcorrect
?
sinc
et helaw isc
learthattheproceedsshouldbeus edinacquir
ing A:No,fir
st,t
her
ateofi
ncomet
axus
edi
sthec
orpor
atei
ncomet
ax
orcons t
ructi
ngane w princi
palresidence.Thus,t
heol dresi
dence alt
houghthetaxpayerisanindivi
dual.Second,t hecomputati
onof
should fir
st be sol
d bef
ore acquiring or co
nstr
uc t
ing t
he ne w the gai
nrecogniz
ed from t
he sale did no
tc ons i
derthe holdi
ng
resi
dence. peri
od oft
heas set.Thecapit
alas s
e thaving been hel
df ormore
than 12months,only50% ofthegai nisrecogni z
ed.(Sec
.39[ b],
Q:I
sthe redempt
ion ofs
tocks ofa corporat
ion f
rom i
ts NIRC)
s
tockhol
ders as wel
l as t
he exchange of common wi
th
pref
erreds
haresconsi
deredas“
essent
ial
lyequi
val
entt
othe Q:Whati
sthe t
ax t
reat
mentoft
he f
oll
owi
ng i
nteres
ton
di
stri
but
ion of t
axabl
e di
vidend" maki
ng t
he proceeds deposi
tswi
th:
t
hereoft
axabl
e? 1.BPIFami
lyBank?
A:Yes
,thegener
alr
ules
tat
est
hatas
toc
kdi
videndr
epr
esent
ing 2.A l
ocaloffs
horebanki
nguni
tofaf
orei
gnbank?
thet ransferofs ur plust ocapi talac counts hal lno tbes ubjectt otax. A:
Ho wever ,ifa c orpor ation c anc els orr edeems s t
ocki ssued as a 1.Iti
sapassi
veinc
omesubj
ecttoawithhol
dingtaxrateof20%.
dividend at s uc ht ime and i ns uch manne r as t o make t he 2.Itisa pas
sivei
ncomesubjec
ttofinalwithhol
ding t
ax rateof
distri
but i
on and c anc ell
ation o rr edempt ion,i n who leo ri n par t
, 7.
5%.(Se
c.24B [1]
,NIRC)Bothint
erest
sareno ttobedeclare
das
essent i
allyequi val entt ot hedi s
t r
ibut ionofat axabledividend,t he par
t of gr
ossi
ncome i
nthe i
ncome t
ax r
etur
n. (
2005 Bar
amounts odi stribut ed i nr edempt ion o rc ancellati
on oft hes tock Ques
tion)
shallbec onsider edast axablei nc omet ot hee xtenti trepr esentsa
distri
but i
onofear ningsorpr ofit
sac cumul at ed. Q:Mari
bel
,a ret
ired publ
ic schoolt
eacher
,rel
ies on her
The r edempt i
on c onver tsi nto mone yt he s tock dividends whi ch pensi
onf
rom t
heGSI
Sandt
heI
nteres
t
becomesar eali
z edpr ofitorgai nandc ons equent l
y,thes tockhol der'
s
I
ncomef
rom a t
imedeposi
tofP500,
000wi
th ABC Bank.I
s
separat epr operty .Pr ofitsde rivedf rom t hec apitalinvestedc annot
Mari
bell
iabl
etopayanyt
axonheri
ncome?
escape i ncome t ax. As r eal ized i nc ome, t he pr oceeds of t he
A:Mar
ibeli
sexemptf
rom t
axo
nthepens
ionf
rom t
heGSI
S(Se
c.
redeemed s t
ock di vidends c an be r eac hed by i ncome t axation
28b[7]F,NRC).However
,withhe rti
medeposit
,theint
eres
tshe
regardless of t he e xistenc eo f any bus iness pur pos ef or t he
re
cei
vest
hereoni
ssubj
ectto20% finalwit
hhol
dingtax.
redempt ion( CIRv .CA,GR108576,Jan.20,1999)

Q: What i
sthe t
ax t
reat
ment of t
he f
oll
owi
ng i
n t
he
preparat
ion of annual i
ncome t
ax ret
urns: I
nteres
t on
Q:John,USci
tizenres
idi
ngi
nMakat
iCi
ty,boughtsharesof
deposi
tswi
th:(
i)BPIFami
lyBank;and (
ii)al
ocaloffshore
s
tocki
nadomes
ticcorporat
ionwhoses
haresarel
ist
edand
banki
nguni
tofaf
orei
gnbank.
A:Bo
thi
temsar
eexc
ludedf
rom t
hei
ncomet
axr
etur
n:(
i)I
nter
est 3.Its hallbec onsi
der edasr e
vo cablydes i
gnated.UnderSec .11o f
i
ncome f
rom any c urrency bank deposi
tiscons
ider
ed pas si
ve theIns uranceCo deo fthePhi lippines,thei nsuredhast her ightto
i
ncomefr
om sourceswithinthePhili
ppinesands
ubj
ecttofinalt
ax. changet hebeneficiaryhedes i
gnat ed int hepolicy,unlesshehas
Si
nceiti
ssubjec
tt ofinaltaxitisnotincl
udedi
ntheannualI TR. expresslywai vedthisr i
ghti nsaidpol icy.Ifthepolicyissilent,the
(
Sec
.24B[
1] RC)(
,NI ii
)SameasNo.(
i)(
2005BarQues
tion) generalr ul
et hatthedes ignati
oni sr evocableshallapply.The reis
onlyirrevocabledesi
gnat ionifthepol ic
ye xpr es
slyprovi
des .

Q:Noeli
sabri
ghtcomput
ersci
encegraduat
e.Hewashi
red
by HP.To ent
icehi
mto acceptt
het
hej
ob,hewasoffered
t
he arrangement t
hat part of hi
s compensat
ion package
woul
d be an i
nsurance pol
icy wi
th af
ace val
ue of P20
mi
lli
on.The parent
sofNoelare made t
he benefici
ari
esof
t
he i
nsurance pol
icy.Wi
llt
he proceeds oft
he i
nsurance
f
orm part oft
he i
ncome of t
he parent
s ofNoeland be
subj
ectt
oincomet
ax?
A:No,t
hepr
oceedsofl
if
eins
uranc
epol
ici
esar
epai
dtot
hehei
rsor
Q:Fred,wasas
tockhol
deri
nthePhi
lippi
neAmeri
canDrug benefic
iari
esuponthedeat
ho ftheinsur
edareno
tinc
ludedaspart
Company.Sai
d corporat
ion decl
ared a s
tock di
vidend and ofthegr ossinc
omeo fthereci
pient.Therei
snoincomereal
ized
t
hata proport
ionat
eshareofs
tock di
vidend wasi
ssued t
o becausenothi
ngflo
wst oNoel
’sparentsot
hert
haname rere
tur
nof

t
heFred.The c
api
tal
,the c
api
tal bei
ng t
he l
if
e of t
he i
nsur
ed. (
2007 Bar

CI
R,demanded payment ofi
ncome t
ax on t
he af
ores
aid Ques
tion)

di
vidends.Fred prot
est
edt
heassessmentmadeagai
nsthi
m
and cl
aimed t
hatt
he s
tock di
vidends i
n ques
tion are not Q:SupposeAlobt
ained an endowmentpol
icy val
ued atP1
i
ncomebutarecapi
talandare,t
heref
ore,notsubj
ectt
otax. mi
lli
on.He pai
d premi
ums amount
ing t
o P800,
000.Upon
Arest
ockdi
videndsi
ncome? mat
uri
ty,herecei
vedP1mi
lli
on,whatamounti
staxabl
e?
A:No,s
toc
kdi
videndsar
eno
tinc
omeandar
ether
efo
reno
ttaxabl
e A:TheamountofP200,
000i
staxabl
e.Thedi
ffer
enc
ebe
tweent
he
ass uch.A s tockdi vi dend,whende clared,i smer elyac ertificateo f val
ueoftheins
uranc
eandt
heac
tualpr
emi
umspai
dfor
mspar
tof
stock whi che videnc es the int erest of t he s t
ockhol deri nt he Al’
sgr
ossinc
ome.
increasedc apitaloft hec orporation.A dec larati
onofs tockdi vidend
by a c orpor ation invol vesno di sbur sementt ot he s t
oc khol derof
accumul atedear ni ngsandt hec orpor ationpar tswi thno t
hingt oits
stockholder .Thepr oper tyr epresent ed byas tock dividendi ss til
l
thato ft hec orpor at i
onandno to ft hes t ockholder.Thes tockhol der
hasr e
c eived no thing buta r epr esent at i
on ofan i nt eresti nt he Q:Mari
oworkedhi
swayt
hrough col
lege.Af
terworki
ngf
or
propert yoft hec or por at
ion andasamat tero ffact,hemayne ver moret
han2yearsi
nX Corporat
ion,Mari
odeci
dedt
oret
ire
receiveanyt hing,de pendi ngupont hefinalout comeo ft hebus i
nes s and avai
l of t
he benefit
s under t
he very reasonabl
e
ofthec o rporation.( Fi sherv.Tr i
ni dad,GRL- 21186,Fe b.27 ,1924) ret
irementpl
an mai
ntai
ned byhi
sempl
oyer
.On t
heday of
hi
sret
irementon Apr
.30,1985,herecei
ved hi
sendowment
Q:Supposet
hecredi
tori
sa corporat
ion and t
hedebt
ori
s i
nsurance pol
icy, f
or whi
ch he was payi
ng an annual
i
tss
tockhol
der
,whati
sthet
axi
mpl
icat
ion i
n cas
ethedebt premi
um ofP1,
520 s
ince 1965,al
so mat
ured.He wast
hen
i
scondonedbyt
hecorporat
ion? pai
dthef
aceval
ueofhi
sins
urancepol
icyi
ntheamountof
A:Thi
smayt
aket
hef
orm ofi
ndi
rec
tdi
str
ibut
iono
fdi
videndsbya P50,
000.I
s hi
s P50,
000 i
nsurance proceeds exempt f
rom
corporation.Onthepar to fthestoc
kholderwhos eindebtednesshas
i
ncomet
axat
ion?
been c ondoned he iss ubjectto 10% finaltax,on t he mas ked
A:The P50,
000 i
nsur
anc
e pr
oceeds i
s no
tto
tal
lye
xemptf
rom
dividend payment.On t he partofthe corpor
at i
on,s aid amount
inc
omet ax.Thee xcludedamounti st hatporti
onwhi c
hcorres
ponds
canno tbe c l
aimed as deduc t
ion.When t he c
or porat
io n decl
ares
tothepremiumst hathehadpai dsince1965.Att herat
eofP1,520
dividends ,i
tcanbec ons i
deredasi nt
erestonc apitaltherefor
eno t
peryearmul t
ipli
edbyt wenty(20)yearswhi c
hwast heperi
odofthe
deduc t
ible.
pol
icy,hemus thavepai dat otalofP30, 400.(P1,
520x20year s)
.
Accor
dingly
,he wi lbe s ubj
ectt or epor
tas t axabl
eincome the
Q:Supposet
heempl
oyeri
nsurest
hel
ifeofhi
sempl
oyeeand amountofP19, 600.(Sec.28,NIRC)
t
heonepayi
ngt
hepremi
umsont
hatl
ifei
nsurancepol
icyi
s
t
heempl
oyer
.Ift
heempl
oyeedi
es: Q:I
fMr
.Generousgaveagi
ftt
oMs.Gorgeouswhataret
he
1.Are t
he proceeds oft
he l
ifei
nsurance pol
icy excl
uded t
axi
mpl
icat
ions?
f
rom t
hegrossi
ncome? A:Mr
.Gene
rous
,the dono
riss
ubj
ectt
o donor
’st
ax whi
le Ms
.
2.Wi
llt
heproceedsf
orm partoft
hees
tat
eoft
hedecedent Gorgeousthedoneei sno tsubj
ectt
odonee’ stax.Donee’staxhas
andt
heref
oresubj
ectt
oes
tat
etax? been abol
ished by PD 69.Theval ue ofthegi ftrec
eived by Ms.
3.Assumi
ngt
hedesi
gnat
ion oft
he3rd person i
nthepol
icy Gorgeous is notincluded int he c
omput ati
on of grossi ncome
i
ssi
lentwhet
herhi
sdesi
gnat
ioni
srevocabl
eori
rrevocabl
e, pursuantto Sec.32 B ( 3),NIRC,gift
s,beques tand devi
s esare
whati
stherul
e? excl
udedfrom grossincome.
A:
1.Yes ,themanne rofdes i
gnat i
onort henameoft hebenefici
aryis Q:Qui
roz worked aschi
efaccount
antofa hospi
talf
or45
immat eri
al.Theamountoft hepr oceedsise xcl
udedf r
om thegross years.When he ret
ired at65 he recei
ved ret
irementpay
income. equi
val
entt
o 2mont
hs'sal
ary f
orevery yearofservi
ceas
2.Itdepends . provi
dedi
nthehospi
talBI
R approvedret
irementpl
an.The
Ift he heirs,es tate,admi nistrator o rexecutor i
s desi
gnated as
Board ofDi
rect
ors oft
he hospi
talf
eltt
hat t
he hospi
tal
beneficiary,t he pr oceeds form par to ft he est
ate whe t
her the
shoul
d gi
veQui
rozmoret
han whatwasprovi
ded f
ori
nthe
designat i
oni srevocabl eori r
r e
voc able.
hospi
tal
's ret
irement pl
an i
n vi
ew of hi
sloyal
ty and
Ift he pe rson des ignated i s a 3r d person (whichi nc
ludes the
i
nval
uabl
e servi
cesf
or45 years.Hence,i
tresol
ved t
o pay
empl oyer,
)thepr oceedsf orm par toft heestateifthedesi
gnationis
hi
m agrat
uit
yofP1mi
lli
on overand abovehi
sret
irement
revocable.Ift hedes ignat i
oni sirrevocabl
e,t heproceedswillnotbe
pay.
includedi nthegr os ses t
ate.
The CI
R t
axed t
he P1 mi
lli
on as part of t
he gross minimum r equi
rementof50yearspro
videdforunderSection32B
compensat
ion i
ncome ofQui
rozwho prot
est
ed t
hati
twas [6]a,ofthe1997NI RC,asamended,shal
lapplyi
nor dertoquali
fy
excl
uded f
rom i
ncomebecause(
a)i
twasa ret
irementpay, fortheexempt i
ongrantedt
herei
n.(BIR Rul
ingNo.SB [ 041]603-
and (
b)i
twasagi
ft.I
sQui
rozcorrecti
n cl
aimi
ngt
hatt
he 2009,Sept.22,2009)
.
addi
tionalP1Mi
lli
on wasgi
ftand t
heref
oreexcl
uded f
rom
i
ncome? Q: Mel recei
ved f
rom hi
s firs
t empl
oyer
, P20,
000 as
A:No,t
heamountr
ecei
vedwasi
ncons
ider
ati
ono
fhi
slo
yal
tyand ret
irement benefit and was subsequent
ly empl
oyed by
i
nval
uabl
eser
vic
est
othec
ompanywhi
chi
scl
ear
lyac
ompens
ati
on anot
her empl
oyer
.Af
ter renderi
ng 10 years,Melret
ired
i
ncomer
ecei
vedo
nac
countofempl
oyment
.Unde
rtheempl
oyer'
s f
rom hi
s second empl
oyer and recei
ved P50,
000.Payment
'
mot
ivat
ion t
est
,'emphas
iss
houl
d be pl
aced on t
he val
ue of wasmadeunderaBI
R approvedret
irementpl
an.I
sthesai
d
Quirozs er
vicestothecompanyast hecompelli
ngr easonforgi
ving amountt
axabl
eornot
?
himt hegr atui
ty,henc
ei tshouldc
onstit
uteat axableinc
ome.The A:Yes
,iti
staxabl
ebec
aus
ethebenefitofe
xempt
ion c
an onl
ybe
paymentwoul donlyqualif
yasagi ftifther
ei sno t
hingbut'good avai
ledofonc
e.
will
,esteem andkindness'whichmoti
vatedtheempl oyert
ogivethe
gratui
ty.(Stont
onv .U.
S.,186F.Supp.393) Q:I
fthesecondempl
oyeri
saGovernmentent
ity(
assumi
ng
Melwasempl
oyedbyt
heDPWH,
)woul
dyouranswerbet
he
Q:JR was a passenger of an ai
rli
ne t
hat crashed.He same?
survi
ved t
he acci
dent but sus
tai
ned seri
ous physi
cal A:No,ac
cor
dingt
oRA 8291(
TheGSI
SAc
tof1997)al
lbenefit
she
i
njuri
es whi
ch requi
red hospi
tal
izat
ion f
or 3 mont
hs. r
ecei
vedar
etaxe
xempt
,inc
ludi
ngr
eti
rementgr
atui
ty.
Fol
lowi
ng negot
iat
ionswi
tht
he ai
rli
ne and i
tsi
nsurer
,an
agreementwasreached undert
he t
ermsofwhi
ch JR was Q:Mari
oworkedhi
swayt
hrough col
lege.Af
terworki
ngf
or
pai
dthef
oll
owi
ngamount
s:P500,
000f
orhi
shospi
tal
izat
ion; moret
han2yearsi
nX Corporat
ion,Mari
odeci
dedt
oret
ire
P250,
000 as moraldamages;P300,
000 f
or l
oss of i
ncome and avai
l of t
he benefit
s under t
he very reasonabl
e
duri
ng t
he peri
od ofhi
streat
ment and recuperat
ion.I
n ret
irement pl
an mai
ntai
ned by hi
s empl
oyer
. On hi
s
addi
tion,JR recei
ved f
rom hi
s empl
oyer t
he amount of ret
irement
,he recei
ved P400,
000 as ret
irementbenefit
.Is
P200,
000 represent
ing t
he cash equi
val
ent of hi
s earned Mari
o’sP400,
000ret
irementbenefitsubj
ectt
oincomet
ax?
vacat
ion and si
ck l
eaves.Whi
ch i
fany,oft
he amount
sare A:Mar
io’
s400,
000r
eti
rementbenefiti
ssubj
ectt
oinc
omet
ax.Tobe
subj
ectt
oincomet
ax? exempt ,the ret
irement pay mus t have been ext
ended to an
A:Theamounto
fP200,
000t
hatJR r
ecei
vedf
rom hi
sempl
oyeri
s employeewhoi satl east10yearswitht heemployer
.Theamount
subjectt oincome t ax,e xceptt he mone y equivalento f10 days cannotbec ons
ideredass eparat
ionpayt hatwouldhaveexempted
unut i
liz
edvac ation l eavec r
editswhi chisno ttaxabl e.Amount sof benefit
sfrom incomet ax si
nceitwasMar iowhohad decided t
o
vacation al
lowanc es or s ickl eave c redits which ar e pai dt o an reti
reinst
eadofbei ngrequi
redtodoso.
empl o
yee constitut ec ompens ation.( Sec.2. 78 A [7],RR 2- 98,as
ame nded byRR 10- 2000)Theamount sthatJR r ecei vedf r
om t he Q:Bernardo,a ret
ired empl
oyee oft
he SC fil
ed a reques
t
airl
inear eexc l
udedf rom gr ossi ncomeandno ts ubj ectt oi ncome wi
tht
heSC f
ort
heref
und oft
heamountofP59,
502whi
ch
tax becauset hey ar ec ompens at ion forpe rsonali njur iess uffer
ed werededuct
ed f
rom hi
stermi
nall
eavepay aswi
thhol
ding
from an accidentaswel lasdamagesr eceived asa r esul
tofan t
ax.TheCourtsai
dthatt
het
ermi
nall
eavepayofBernardo,
agreementonac c ountofs uchi njuries.(Sec.32B [ 4],NI RC)( 2005 whi
ch he recei
ved by vi
rtue ofhi
scompul
sory ret
irement
,
BarQues
tion) can never be consi
dered as partofhi
s sal
ary s
ubj
ectt
o
i
ncome t
ax. Hence, Bernardo’
s reques
t was grant
ed. I
s
Q:Assumi
ngi
tdoesnotf
orm partoft
het
ermi
nall
eavepay, t
ermi
nall
eavepaysubj
ectt
oincomet
ax?
aswhen i
tisgi
ven annual
lyt
othe empl
oyee,wherei
nthe A:No,s
inc
eter
minall
eave pay i
s appl
ied f
or by an o
ffic
er or
vacat
ion ors
ick l
eavemay beconvert
ed i
nto cash.Whati
s employeewhohasal readyseveredhisconnec t
ionwi thhi semployer
t
he t
ax t
reat
mentoft
he cash equi
val
entofsuch vacat
ion and who i s no l onger working,it necessaril
yf ollows that the
l
eavecredi
ts? terminall eavepayori tscashequival
enti snol ongerc ompensation
A:I
tdepends
. forservicesr ender ed.Therefo
re,itcanno tber eceivedbyt hes aid
1.Forpr
i vateemploye s–vac
e ati
onleavesareexemptf
rom taxupto employeeass al
ary .Itisoneoft hosee xcl
udedf r
om gr ossincome
10dayswhi lesi
c kleavesareal
waystaxable. andist her eforeno ts ubj
ecttotax.(Re
:Re questofAt ty.
2.Forgovernme ntempl oye
es–bothvacati
onands i
ckleavesar
etax BernardoZi al ci
ta,AM 90- 6-
015-SC,Oc t
.18,1990)
exempti
r respe
ctiveo fthenumberofdays.
Q:OnDec.06,2001,LVN Corp.donat
edapi
eceofvacantl
ot
Q:Areret
irementbenefit
spai
d byan empl
oyerwhi
ch does si
tuat
ed i
n Mandal
uyong Ci
tyt
o an accredi
ted and dul
y
nothave a pri
vat
e benefitpl
an buthas an exi
sti
ng CBA regi
stered non-
stock,non-
profiteducat
ionali
nst
itut
ion t
o
provi
ding f
or ret
irement benefit
s of empl
oyees excl
uded be used by t
he l
att
er i
n bui
ldi
ng a sport
s compl
ex f
or
f
rom i
ncomet
ax? s
tudent
s.Mayt
hedonorcl
aimi
nful
lasdeduct
ion f
rom i
ts
A:Yes
,pr
ovi
dedt
hatt
hemi
nimum ager
equi
rementandt
hel
engt
h grossi
ncome f
ort
he t
axabl
e year2001 t
he amountoft
he
ofservicepr erequisi
tear eme t.Sec.32B[ 6]Aoft heNI RCpr ovides donat
edl
otequi
val
entt
oit
sfai
rmarketval
ue/
zonalval
ueat
fortwoc ondi t
ionsinor derf orr et
irementbenefit stobee xemptf rom t
het
imeoft
hedonat
ion?
incomet ax and,c onsequent ly,from wi thhol di ng tax:t her eti
ring A:No,donat
ions and/
or c
ont
ribut
ions made t
o qual
ified donee
empl o
yee( 1)hasbeen i nt hes erviceoft hes ameempl oyerforat inst
itut
ionscons i
sti
ngofpropertyot
herthanmoneys hallbebased
least10year s
;and( 2)isno tl essthan50year sofageatt hetimeo f ont heacquisi
tioncosto
fthepr oper
ty.Thedonori
sno tentit
ledto
hisr eti
rement .On t he ot her hand,under RA 7641,t he actual clai
m asf ul
ldeduc t
ionthefai
rmar ketval
ue/z
onalvalueofthelot
reti
rementagemaye ven bel owert han50year sofage,buts ince donat
ed.(
Sec
.34[
H] RC)(
,NI 2002BarQues
tion)
theCBAo ro t
herappl icableempl o
ymentc ont rac tisdeemedt helaw
betweent hepar ti
es,theagr eedageo fretirements hallbec omet he
basisinde termi ni
ngt het axabi li
tyofr e
tirementbenefit sofr eti
ring
empl o
yees .Thus ,for pur poses ofde t
er mi ning t he t axabili
tyo f
reti
rementbenefit sreceivedbyr eti
ringempl o yees ,ther etir
ement
age ist hat age es tablished i nt he CBA o ro ther appl i
cable
Q:Jacoboworkedf
oramanuf
act
uri
ngfirm.Duet
obusi
ness
empl o
yment c ontract.Ho we ver ,ift he CBA o ro ther appl i
cable
reversest
hefirm offered vol
unt
aryredundancyprogram t
o
empl o
ymentc ontractdoesno tpr ovide fora r et
ireme ntage,t he
reduceoverhead expenses.Undert
heprogram an empl
oyee Sec.28 B *8+ e,t o wit:“Prizesand awar dsmade pr imaril
yi n
who offered t
o res
ign woul
d be gi
ven separat
ion pay recogniti
on ofr el
igi
ousc hari
table,scienti
fic
,e ducational,artist
ic,
equi
val
entt
o hi
s3 mont
h'sbas
ic sal
ary f
or every year of lit
erary,orc i
vicachi
evement ”
servi
ce.Jacoboaccept
ed t
heofferand recei
ved P400.
000as The fellowship awardo f$10, 000 is however,excluded f rom her
separat
ionpayundert
heprogram incomeass hewass elec
tedther ef
orewi t
houtanyac tiononherpar t
Af
teral
lthe empl
oyeeswho accept
ed t
he offerwere pai
d, and t he same was gi ven to heri nr ecognit
ion ofl iterary and
educat i
onalachievement,presumabl ywithouthe rbeingr equiredto
t
he firm f
ound i
ts overhead i
sst
ill excessi
ve.Hence i
t
r
ende
rfut
ures
ervi
cesf
ort
hegr
ant
or.(
1993BarQues
tion)
adopt
edanot
herredundancyprogram.Vari
ousunprofit
abl
e
depart
ment
s were cl
osed. As a resul
t, Ki
ntanar was
Q:A won P100,
000 i
n a compet
iti
on sanct
ioned by t
he
separat
ed f
rom t
he servi
ce.He al
so recei
ved P400,
000 as
nat
ionalsport
sassoci
ati
on.Gi
vet
het
axi
mpl
icat
ion/
sast
o
separat
ionpay.
t
hereci
pientaswel
last
othedonor/
cont
ribut
or.
1. Di
d Jacobo deri
ve i
ncome when he recei
ved hi
s
A:Ast
other
eci
piento
ftheawar
d,i
tise
xemptf
rom i
ncomet
ax.As
separat
ionpay?
tothecont
ribut
or/
donoroft
heaward,itisexemptf r
om donor’
stax
2. Di
d Ki
ntanar deri
ve i
ncome when he recei
ved hi
s
notbased on the NI
RC buton RA 7549.Co ntri
but
or/Donoris
separat
ionpay?
all
owedtoclaimitasadeduct
ionfrom grossincomebasedonRA
A:
7549.
1.Yes ,becausehi sseparat i
onf rom empl oymentwasvol unt aryon
hispar tinviewo fhisoffertor esign.Whati se xcludedf r
om gr oss
Q:Onyoc,an amat
eurboxer
,won i
n a boxi
ng compet
iti
on
inc ome is any amountr ecei
ved by an offic ialorempl oyee as a
sponsored by t
he Gol
d Cup Boxi
ng Counci
l, a sport
s
cons equence ofs eparati
on ofs uc h officialorempl oyeef rom t he
associ
ati
on dul
y accredi
ted by t
he Phi
lippi
ne Boxi
ng
ser vic
eo ftheempl o
yerforanyc aus ebe yondt hec ontrolofthes aid
offici
alorempl oyee.(Sec28,NI RC) Associ
ati
on.Onyocrecei
ved t
he amountofP500,
000 ashi
s
2.No,bec aus ehi ss e
par ati
on from empl oymenti sduet oc auses pri
ze whi
ch wasdonat
ed by Ayal
a Land Corporat
ion.The
be yond hisc ontrol.The s eparation wasi nvolunt ary asi twasa BI
Rtri
ed t
o col
lecti
ncomet
ax on t
heamountrecei
ved by
cons equence oft he closure ofvar i
ous unpr ofitable department s Onyocwhoref
usest
opay.Deci
de.
pur
suantt
other
edundanc
ypr
ogr
am.(
1995BarQues
tion) A:Thepr
izewi
llno
tcons
tit
uteat
axabl
einc
omet
oOnyoc
,henc
e
the BIRi s notc orrecti ni mpos i
ng the income t ax.RA 7549
Q:Z,a Fi
lipi
no i
mmi
grantl
ivi
ng i
nthe Uni
ted St
atesf
or expl
ici
tlyprovidest hat“Al lpriz
esandawar dsgr antedt oat hlet
esi n
more t
han 10 years.He i
s ret
ired and came back t
othe l
ocalandi nternationals portstournamentsandc ompe ti
t i
onsi nt he
Phi
lippi
nes a bal
ikbayan. Every t
ime he comes t
othe Phil
ippineso rabroad ands ancti
onedbyt heirr espectivenat ional
sport
sas soci
ations hal
lbee xemptfrom i
ncomet ax.”
Phi
lippi
nes,hes
taysheref
orabouta mont
h.Heregul
arl
y
Neit
heri stheBI Rc orrecti ncoll
ecti
ngthedonor ’
st axf rom Ayal a
recei
vesa pens
ion f
rom hi
sformerempl
oyeri
ntheUni
ted
Land corporation.The l aw isc l
ear when itc atego r
icallys tated
St
ates,amount
ing US$1,
000 a mont
h.Does t
he US$1,
000
“Thatthedono rsofs aidpr izesandawardss hal
lbee xemptf r
om t he
pensi
on become t
axabl
e because he i
snow res
idi
ng i
nthe
paymento
fthedonor
’st
ax.
”(1996BarQues
tion)
Phi
lippi
nes?
A:No,t
hel
aw pr
ovi
dest
hatpens
ionsr
ecei
vedbyr
esi
dentornon-
Q:When t
herearenorecei
ptst
oproveadeduct
ion,can t
he
resi
dent c
iti
zens o
ft he Phil
ippines f
rom forei
gn gover
nment
agenci
esandotheri
nst
itut
ions
,privateorpubl
ic,ar
eexcl
udedfr
om t
axpayers
til
lcl
aimi
tasadeduct
ion?
gr
ossi
ncome.(
Sec
.32B[
6]c RC)(
,NI 2007BarQues
tion) A: Yes
,the l
ack of s
uppor
ting vouc
her
s,r
ecei
pts
, and o
ther
documentar
ypr oofhowevermaybee xc
us edunderSec.235oft he
NIRC,thepr o
visi
onwhi chrequi
resthepreservati
onofthebooksof
Q:JM,recei
ved apri
zeofP100,
000f
orwi
nni
ngt
heon-
the-
account
sando theraccounti
ngrecor
dsf orape ri
odof3year sfr
om
spotpeace pos
tercont
estsponsored by t
he Li
onsCl
ub.I
s
thedateofl
astentry.(
Bas i
lanEstat
esv.CI R,GR L022492,Sept
.5,
t
he award i
ncl
uded i
nthe gross i
ncome of JM f
or t
ax
1967)
purposes?
A:No,i
tisno
tinc
luded.I
tiss
ubj
ectt
oafinalt
axo
f20% f
ort
he
Q:MC,acont
ract
orwhowont
hebi
dfort
hecons
truct
ionof
amountisine xc
essofP10,
000,o
ther
wiseitwoul
dbeinc
ludedin
a publ
ic hi
ghway,cl
aims as expense,f
aci
lit
ies f
ees whi
ch
hi
sgrossincomeands ubj
ect
edtoas c
hedul
errat
e(Se
c.24B [1]
,
accordi
ng t
o t
hem i
sst
andard operat
ing procedure i
n
NIRC)(2000BarQues ti
on)
t
ransact
ions wi
th t
he government
. Are t
hese expenses
Not
e:The pr
izec
ons
tit
utes a t
axabl
einc
ome f
ori
twas made
al
lowabl
easdeduct
ionf
rom grossi
ncome?
pri
mari
lyi
nr ec
ogni
tion ofhi
sarti
sti
cachi
evementwhic
h hewon
A:No,t
heal
legedf
aci
li
tat
ion f
eeswhi
cht
heyc
lai
msass
tandar
d
duetoanact
iononhi sparttoent
erthecontes
t.(
Sec
.32B [7]c
,
operati
ngproc
edurei
ntrans
acti
onswi t
ht hegover
nmentc omesin
NIRC)
theformofbri
besor“
kic
kbac
k”whi c
har enotal
lowedasdeducti
ons
from gr
ossi
ncomeasthe
yareil
legal
.(Sec.34A[1]c,NI
RC)
Q:Q won P2,
500 as part of t
he Pal
anca Award f
or an
out
standi
ng shorts
tory.She was al
so named MVP oft
he
Q:OXY i
sthe pres
identand CEO ofADD Comput
ers,I
nc.
Varsi
tyvol
leybal
lteam andwasgi
ven at
rophyandP10,
000.
When OXY was asked t
ojoi
nthe government servi
ce as
Fi
nal
ly, she recei
ved a Fel
lowshi
p Award f
rom t
he
di
rect
or ofa bureau under t
he Depart
mentofTrade and
Uni
vers
ity of Cal
iforni
ato purs
ue a mas
ter'
s degree i
n
I
ndus
try,he t
ook a l
eave ofabsence f
rom ADD.Bel
ievi
ng
Ameri
can l
iterat
ure.Thef
ell
owshi
pisf
or$10,
000pl
usf
ree
t
hat i
ts busi
ness out
look, goodwi
ll and opport
uni
ties
board and l
odgi
ng.Shoul
dQ i
ncl
ude t
hese awards and
i
mproved wi
th OXY i
nthe government
,ADD proposed t
o
f
ell
owshi
pinhergrossi
ncome?
obt
ain apol
icyofi
nsuranceon hi
sli
fe.On et
hicalgrounds,
A:The fir
st awar
d gr
ant
ed t
o Q,a Pal
anc
a awar
d,r
equi
res
OXY obj
ect
edt
othei
nsurancepurchasebutADD purchased
submi ss
ion ofliteraryworks.He nce,thisisinc l
udedi nt hegr oss
t
he pol
icy anyway. I
ts annual premi
um amount
ed t
o
income bec ausei tf ai
lsto mee tthe legalrequirementt hatt he
P100,
000.I
ssai
d premi
um deduct
ibl
e by ADD Comput
ers,
recipi
entwass electedwithoutanyac t
iononhi spar ttoent erthe
I
nc.
?
contestorpr oc
eeding.
Int hesecondawar d,Q didno tfil
eanyappl i
cati
ont oent erint oany A:No,t
hepr
emi
um i
sno
tdeduc
tibl
ebec
aus
eiti
sno
tanor
dinar
y
contest. The awar d was given to he rinr ecogni
tion f or her busi
nes
se xpens
e.Theterm"ordinary"i
susedi
ntheinc
ometaxlaw
outstanding per f
ormanc ei nt he fiel
d of sports. Ho wever ,the initscommon s i
gni
fic
ance and ithas t
he c
onnot
ati
on ofbei
ng
recognit
ion int hefieldofsportsisno tamongt hosest at
edunde r nor
mal,usualorcust
omary.(
De putyv.Du
Pont,308US 488[ 1940] )Payingpr emiumsf ort hei nsuranceofa Q: I
n 2006, Sal
ly, a f
rui
t market operat
or recei
ved an
person no tc onne cted tot he c ompany is no t nor mal ,usualor assessment f
or cust
oms dut
ies f
or her i
mport
ed market
customar y.Ano therr easonf oritsnon-deductibilityi sthefactt hat equi
pment i
nthe amount of P75,
000.Bel
ievi
ng t
hat t
he
itc an be c onsidered as an i ll
egal compens ation made t oa amount i
s excessi
ve, s
he pai
d t
he same under prot
est
.
governmentempl oyee.Thi siss obecaus ei
ft hei ns ured,hises tate Becauseoft
heassurancesf
rom herret
ained CPA t
hatshe
orhei rswer emadeast hebeneficiary(bec
aus eoft her equir
ement s
tandsa good chance ofbei
ng abl
eto secure a ref
und of
ofi nsurablei nteres t
),t he payment ofpr emi um wi llconstitute
P50,
000 she di
d not deduct t
he same anymore f
rom her
bribeswhi char eno tal l
o wedasdeduc t
ionfrom gr ossincome.( Sec.
i
ncomet
axret
urn.Shededuct
edonl
ytheP25,
000whi
chshe
34A[ l
]c,NI RC)
bel
ieved was due f
rom her
. She recei
ved t
he ref
und
On t he other hand,i ft he company was made t he benefic
iary,
amount
ing t
o P50,
000 i
n 2008.Whatshoul
d have been t
he
whe therdi rectl
y ori ndirec
tly,the premium i sno tallowed asa
propert
axt
reat
mentoft
hepaymentofP75,
000i
n2006?
deduc t
ionf r
om gr ossi ncome( 2004BarQues tion)
A:Sal
lys
houl
dhavededuc
tedt
het
otalP75,
000c
ust
omsdut
iesi
n
2006.Whens herecei
vedt her ef
undofP50, 000in2008,s heshould
Q:Gol
dandSi
lverCorporat
i ra14th mont
ongaveext h bonus
havei ncl
uded theamountaspar tofhe rincome.Undert het ax
t
oal
lit
soffici
alsand empl
oyeesi
nthet
otalamountofP75 benefitr
ule,taxesall
o wedasdeduc tions
,whenr efunde
do rcredi
ted
mi
lli
on.When i
tfil
ed i
tscorporat
eincome t
ax ret
urn t
he shallbeincl
udedaspar tofgr
os sincomei nt
heye arofrec
eipttothe
f
oll
owi
ng year
,the corporat
ion decl
ared a net operat
ing extentoftheincomet axbenefitofsaiddeducti
on.
l
oss.When t
he i
ncome t
ax ret
urn oft
he corporat
ion was
revi
ewedbyt
heBI
Rthef
oll
owi
ngyear
,itdi
sal
lowedasi
tem Q:X,a t
ravel
ling sal
esman i
n Sul
u.I
nthe course ofhi
s
ofdeduct
ion t
heP75mi
lli
on bonust
hecorporat
ion gavei
ts t
ravel
,abandofMNLF sei
zedhi
scarbyf
orceandusedi
tto
offici
alsand empl
oyeeson t
heground ofunreasonabl
eness. ki
dnap af
orei
gn mi
ssi
onary.Thenextday,t
hemi
lit
aryand
Thecorporat
ion cl
aimed t
hatt
hebonusi
san ordi
naryand t
he MNLF band had a chance encount
erwhi
ch caused X’
s
necessary expense t
hatshoul
d be al
lowed.I
fyou weret
he cart
o be a t
otalwreck.Can X deductt
he val
ue ofhi
scar
CI
R,how wi
llyoures
olvet
hei
ssue? f
rom hi
sincomeascasual
tyl
oss?
A:Iwi
llr
uleagai
nstt
hededuc
tibi
li
tyoft
hebonus
.Thee
xtr
abonus A:I
tdepends
.IfX i
sanempl
oyeeofac
ompany
,hec
anno
tdeduc
t
isnotnormalt othebusinessand unreasonable.Gi vi
ngan e xtr
a thelossesincur
r edsinc eani ndividualtaxpayerwhode r
ivesincome
bonusatat i
met hatthec ompanysuffer
soperat i
ngl ossesi
sno ta from c ompensat i
on i s al l
owed onl y pe rsonal and addi t
ional
paymentdoneingoodfait
handi snotnor maltothebus iness
,henc e deductions and t he r easonable pr emi ums f or heal t
h and
unreas
onable and woul
d no tqual
ify as ordi
nar y and neces
s ar
y hospitali
zati
onins urance.
e
xpens
e.(
2006BarQues
tion) IfX isengagedi nt r
adeo rbus iness,hecandeduc ttheval ueofthe
carfrom hi sgrossinc omepr ovidedhec an r ecoveronlyupt ot he
amounto ft
hec asualtyl os sthatdoesno te xceedi t
sbookval ue,and
thatiti sno tc
ompens at ed byi nsuranc
eoro t
her wis
e.( 1993 Bar
Ques
tion)
Q:Noeli
sabri
ghtcomput
ersci
encegraduat
e.Hewashi
red
byHewl
ettPackard.Toent
icehi
mtoacceptt
hej
ob,hewas Q:Z purchased f
ull
y depreci
ated machi
neri
esand ent
ered
offeredt
hearrangementt
hatpartofi
scompensat
ionwoul
d t
hemachi
neri
esi
nhi
sbooksatP120,
000.
bean i
nsurancepol
icywi
th af
aceval
ueofP20mi
lli
on.The Basedont
hei
ndependentapprai
salandengi
neeri
ngreport
,
parent
sofNoelaremadet
hebenefici
ari
esoft
hei
nsurance Z ass
igned t
othe machi
neri
esan economi
cli
fe of5 years.
pol
icy.Can t
he company deductf
rom i
tsgrossi
ncome t
he Adopt
ingt
hes
trai
ght
linemet
hod,Z cl
aimed adepreci
ati
on
amountoft
hepremi
um? deduct
ion of P24,
000 i
n hi
sincome t
ax ret
urn. I
sthe
A:Yes
,thepr
emi
umspai
d ar
eor
dinar
y and nec
ess
ary bus
ines
s deduct
ion proper
,consi
deri
ng t
hat i
nthe hands of t
he
expenseso fthecompany.The y ar eallowed asa deducti
on fr
om ori
ginal owner
,the sai
d machi
neri
es were al
ready f
ull
y
grossincomes olong astheempl oyeri snota directorindir
ect
depreci
ated?
benefic
iaryunderthepolicyofins urance.Si
nc etheparentsofthe
A:Yes
,thes
tar
tingpoi
ntf
ort
hec
omput
ati
ono
fthededuc
tionsf
or
employee were made the benefic
iaries,the prohi
bit
ion f
or t
heir
depreciat
ion isther easonablec os tofacquiri
ngt heas s
e tand i
ts
deductiondoesnotexi
st.(
Sec.36A[ 4],NIRC)
economi clife. The f actt hat t he mac hi
neri
es wer e al r
eady
depreciat
ed byi tsoriginalownerdoesno tmat t
er.Z isal l
owed a
Q: Al
gue, I
nc. i
s a domes
tic corporat
ion engaged i
n depreciat
ionallowancef orthee xhaus t
ion,wearandt ear( i
ncl
uding
engi
neeri
ng, cons
truct
ion and ot
her al
lied act
ivi
ties. reasonableallowancef orobsolescence)ofthemac hiner
ieswhi chhe
Phi
lippi
ne Sugar Es
tat
e Devel
opment Company (
PSEDC) isus i
ngi n histradeo rbusiness .(Sec.34[F],NI RC)( 1983 Bar
appoi
nted Al
gueasi
tsagent
,aut
hori
zingi
ttosel
lit
sland, Ques
tion)
f
act
ori
esandoi
lmanuf
act
uri
ngprocesses.Pursuantt
osai
d
aut
hori
ty and t
hrough t
he j
ointeffort
s oft
he officers of
Q:Whati
sthe annualdepreci
ati
on ofa depreci
abl
e fixed
Al
gue, t
hey f
ormed t
he Veget
abl
e Oi
l I
nves
tment
asset wi
th a cos
t of P100,
000 havi
ng a sal
vage val
ue of
Corporat
ion,i
nduci
ngot
herpersonst
oinves
tini
t.Thi
snew
P10,
000 and an es
timat
ed usef
ull
ife of20 yearsundert
he
corporat
ionl
aterpurchasedt
hePSEDC propert
ies.Fort
his
s
trai
ghtl
inemet
hod?
sal
e,Al
gue recei
ved asan agenta commi
ssi
on ofP125,
000
A: The annual depr
eci
ati
on i
s P4,
500 c
omput
ed as f
oll
ows
:
andf
rom t
hiscommi
ssi
ont
heP75,
000promot
ionalf
eeswere Acqui
sit
ioncostlesss
alvageval
ue,thendi
videthedi
ffer
enc
ebyi t
s
pai
dtot
he officers ofAl
gue.I
sthe promot
ionalexpense us
efulli
fe.[
100,000–10,000=90,000]t
hen[90,
000/20=4,500]
deduct
ibl
e?
A: Yes
,the pr
omo
tional e
xpens
e pai
d by PSEDC t
o Al
gue Q:Aret
hef
oll
owi
ngexpensesdeduct
ibl
efrom grossi
ncome:
amount ingt oP75,000i sdeduc ti
bleforitwasr eas onabl
eandno t
1) Empl
oyer’
scont
ribut
ion t
othe Chri
stmasf
und of
exces
s i
ve.Al gueprovedt hatthepaymento ft hef eeswasnec essary
hi
sempl
oyees
andr easonableint hel i
ghtoft heeffor
tse xertedbyt hepayeesi n
2) Cont
ribut
ion t
othe cons
truct
ion ofa chapelofa
inducing invest
orsand pr omi nentbusinessmen t ovent urei n an
uni
vers
ity t
hat decl
ares di
vidends t
o i
ts
experiment alenterpris
e( Vege t
able OilInves tment Cor porati
on)
s
tockhol
ders
and involve themselves in a new businessr equi r
ing milli
ons of
3) Premi
ums pai
d by t
he empl
oyer f
or t
he l
ife
pesos.(CIRv .Algue,GRL- 28896Feb.17,1988)
i
nsuranceofhi
sempl
oyees
 4) Cont
ribut
ion t
o a newspaper f
und f
or needy A:Addi
tionale
xempt
ionsmaybec
lai
medonl
ybyt
hes
pous
ewho
f
ami
lieswhensuchnewspaperorgani
zesagroupof hascus
todyoft
hechi
ldo
rchi
ldr
en.
ci
vic spi
rit
ed ci
tizens sol
ely f
or chari
tabl
e (Se
c.35[B]
,NIRC)
purposes.
A: Q:W,l
egal
ly separat
ed has1 chi
ld who i
s15 yearsofage.
1. Yes,unde rNo.27 RAMO 1- 87 s ubje c
tt othec onditi
on Wi
llshebeent
itl
edt
opersonaladdi
tionalexempt
ion?
thatt he c ontributi
on does no te xc eed ½ mont h’ s basic A:Yes
.
salar
yofal ltheempl oyees.Itispar to ftheor di
nar yand
necessarye xpenses. Q:Assumi
ng,t
he chi
ld get
smarri
ed,i
sW s
til
lent
itl
ed t
o
2. No,par toft hene tincomeo ftheuni versi
tyinur est othe personalexempt
ion?
benefitofit sprivat
es tockholders.(Se c.34[H],NI RC) A:No.
3. No,f ort he benefic i
aryi st he empl oyer(Sec.36 A [ 4],
NIRC)
Q:Supposed t
hechi
ld wasgai
nful
lyempl
oyed att
heageof
4. No,c ontribut i
onst oane wspaperf undf orneedyf amili
es
15,i
sW s
til
lent
itl
edt
opersonalexempt
ion?
areno tdeduc t
ibleforther easont hatt heincomei nur esto
A:No.
the benefit o ft he privates tockhol der oft he pr i
nt i
ng
company .(1968BarQues ti
on)
Q:The chi
ld reached t
he age of22,i
sW s
til
lent
itl
ed t
o
personalexempt
ion?

Q: The Fi
lipi
nas Hospi
tal f
or Cri
ppl
ed Chi
ldren i
sa A:I
tdepends
,asar
ule,t
hec
hil
dmus
tno
tbemo
ret
han21year
s

chari
tabl
e organi
zat
ion.X vi
sit
ed t
he hospi
tal and gave old.Ho wever
,adependent
,regardl
essofage,whoisi
ncapabl
eof
self
-supportbec
aus
eo fmentalorphysi
caldef
ectmayqual
ifyasa
P100,
000t
othehospi
taland P5,
000t
oacri
ppl
ed gi
rlwhom
dependent.
hepart
icul
arl
ypi
tied.A cri
ppl
ed son ofX i
sint
hehospi
tal
Not
e:I
ncas
eofager
equi
rementt
her
eisan e
xcept
ion,butwi
th
asoneofi
tspat
ient
s.X want
stoexcl
udebot
htheP100,
000
r
egardtomar
riageandgai
nfulempl
oyment
,theNI
RC pr
ovi
desno
andt
he5,
000f
rom hi
sgrossi
ncome.Di
scuss.
e
xcept
ion.
A:I
fX i
sear
ningf
rom c
ompens
ati
oni
ncome,hec
oul
dno
tdeduc
t
eit
hert heP100,000andt heP5,000.Ifheisearningf rom tr
adeo r
Q: Charl
ie, a wi
dower
, has t
wo sons by hi
s previ
ous
business,hecoulddeduc ttheP100,000ift
hehos pitalisaccredi
ted
marri
age.Charl
iel
iveswi
th Janewhoi
slegal
lymarri
ed t
o
asadoneei nstit
ution.Ifnot,t
hennodeductionisallowed.
Ho wever,he could notdeduc tthe P5,
000 bec
aus et o qual
ifyfor Mari
o.They have a chi
ld named Ji
ll.The chi
ldren are al
l
exemption,thec hari
tablecontri
buti
onmus tbegi ventoac credi
ted mi
norsandnotgai
nful
lyempl
oyed.
or
gani
zat
ions o
r as
soc
iat
ions
.(Se
c.34 H [
1] RC)(
,NI 1993 Bar 1. How muchpersonalexempt
ioncanCharl
iecl
aim?
Ques
tion) 2. How muchaddi
tionalexempt
ioncanCharl
iecl
aim?
A:
Q:On t
he partoft
he cont
ribut
or,are cont
ribut
ions t
oa 1. Char l
iemayc lai
mt hebasi
cpe rsonalexempt i
on( BPE)of
candi
dat
einanel
ect
ional
lowabl
easadeduct
ionf
rom gross P50,000.Under RA 9504,an i ndivi
dualt axpayer may
claimtheBPEi r
respect
iveofs t
atus.
i
ncome?
2. Hi sc hil
dren from hi s previous mar riage who ar e
A:The c
ont
ribut
or i
s no
t al
lowed t
o deduc
tthe c
ont
ribut
ions
legit
imatec hi
ldren and hi
si ll
egiti
mat echild wit
h Jane
becauset he s
aide xpens
eis not dir
ectl
y at
tri
butabl
et othe
wi l
lallentitl
ehi mt oadditionalpe rs
onale xemption of
development
,managementand/
oroperat
ionand/
orconducto
ftr
ade
P25,000 foreach dependent,ifapar tfrom being mi nor
orbus
ines
sorpr
ofes
sion.(
1998BarQues
tion)
and no tgainf
ully emplo
yed,t hey areunmar ri
ed,living
wi t
handdependentuponChar l
iefortheirchiefsuppor t
.
Q:I
sa non-
resi
dental
ien engaged i
ntrade,busi
ness,ori
n (2006BarQues tion)
t
he exerci
se ofa prof
essi
on i
nthe Phi
lippi
nes(
NRA-
ETB)
ent
itl
edt
opersonalandaddi
tionalexempt
ions?
Q:Mar and Joy gotmarri
ed i
n 1990.A week bef
ore t
hei
r
A:
marri
age,Joyrecei
ved,bywayofdonat
ion,acondomi
nium
GR:No.
uni
twort
h P750,
000 f
rom herparent
s.Af
tert
he marri
age,
XPN:Can beent
itl
ed t
ope
rsonaland addi
tionale
xempt
ion
some renovat
ions were made at a cos
t of P150,
000.The
s
ubj
ectt
other
uleonr eci
pro ci
ty:
spouseswerebot
h empl
oyed i
n 1991by t
hesamecompany.
1. Hisf oreignc ountryallowsper sonalexempt ions
On 30 Dec.1992,t
hei
r firs
tchi
ld was born,and a s
econd
toc i
tizens o ft he Phi l
ippi
nes no tr esiding
chi
ld was born on 07 Nov.1993.I
n 1994,t
hey sol
dthe
therein;
condomi
nium uni
tandboughtanew uni
t.
2. Filean ac cur at
er etur
n ofhisi ncomef rom all
sourceswi thinthePhi l
ippines
.ont ime;and Undert
hef
oregoi
ngf
act
s,whatweret
heevent
sint
hel
ifeof
3. Amountal lowableisno ttoexceedourmaxi mum t
hespousest
hathadi
ncomet
axi
nci
dence?
all
owabl eper sonalexemption. A:The e
vent
sint
he l
if
eofs
pous
es,Marand Jo
y,whi
ch have
i
ncomet
axinc i
dencear e:
Q:I
ncaseofmarri
edi
ndi
vidual
sandbot
hareworki
ng,who 1. Theirmar riagei n1990hadnoeffec tont heirentitl
ement
tothebas icpe rsonale xempt i
ono fP50, 000whi c
hma ybe
i
sent
itl
edt
oaddi
tionalexempt
ions?
enjoyedirres pectiveoft heindividualtaxpayer ’sstat
us;
A:Addi
tionale
xempt
ionf
ordependent
sshal
lonl
ybeal
lowedt
oone
2. Their empl o ymenti n 1991 by t he s ame c ompany wi ll
ofthes pouses.Thehusbandshallbet
hepr
ope
rclai
mantunles
she
make t hem l iablet ot he income tax i mpos ed on gross
expli
cit
lywai veshisr
ightinfavoroft
hewi
fei
ntheAppli
cat
ionfor
compens ationi ncome;
Registr
at i
on(Sec.35[B],NI
RC)
3. Birth oft hei rfirstchi l
di n 1992 woul d giver iset oan
Not
e:Wher
ethes
pous
eisunempl
oyedo
risanon-
res
identc
iti
zen
additionalexempt ionofP25, 000f ortaxableyear1992;
deri
vingincomef r
om forei
gns ources,theemployeds
pous
ewithin
4. Birthoft hei rs econdc hil
di n1993woul dlike wi
seent i
tle
the Phili
ppines shal
l be aut omatical
ly ent
itl
ed t
oc l
aim the
them t oclaim addi t
ionale xempt i
on o fP25,000f or1993.
addi
tionalexempti
onsforthei
rc hil
dren.
(1997BarQues tion)

Q:I
n case ofl
egal
ly separat
ed spouses,who i
sent
itl
ed t
o
Q: Assumi
ng X, a resi
dent ci
tizen, marri
ed and has 4
addi
tionalexempt
ions?
qual
ified dependent
s.He earns a mont
hly compensat
ion
i
ncomeofP25,
000.I
n2009,heearnedP150,
000asneti
ncome Q: Does t
he absence of fli
ght operat
ions wi
thi
n t
he
f
rom hi
sret
ailbus
iness.How muchi
shi
staxabl
eincomef
or Phi
lippi
ne t
erri
tory render t
he i
ncome recei
ved by an
t
heyear2009? i
nternat
ionalai
rcarri
eri
ncomeout
sidet
hePhi
lippi
nes?
A:X’
staxabl
einc
omef
ort
heyear2009i
sP300,
000c
omput
edas A:No,af
orei
gn ai
rli
nec
ompanys
ell
ingt
icke
tsi
nthePhi
li
ppi
nes
f
ollo
ws : through t hei
rlocalagentss hallbec onsider edasr esidentf or
eign
GrossI ncome( P25,000x12)P300, 000 corporation engaged int rade or bus i
nes si nt he c ountry.The
Less:Bas icPersonalexemptions( 50,000) absenc eoffli
ghtoperationswithint hePhi lippinescanno talterthe
AdditionalExempt ion( 25Kx4)( 100,000) factthatt heincomer ecei
vedwasde ri
vedf rom ac t
ivi
tieswi thint he
Premium payment on heal t
h and/ or Hospi
taliz
ati
on i
nsur
anc
e Philippines.Thet es
toft axabili
tyist hes our c
e,andt hes ourcei s
--
--
----
---- thatac ti
vitywhi c
hpr oducedthei ncome.( Ai rCanadav .CIR,CTA
NetCompens ationIncome150, 000 Cas eNo.6572,De c.22,2004)
Add:Ne tbusinessincome150, 000 Not e:Ifani nternati
onalairc arri
ermai nt ainsfli
ghtst oandf rom
Taxabl eincomes ubjecttogr
aduat edr at
esP300,000 thePhi l
ippines,itshal
lbet axed atther ateo f2½% ofitsGross
Not
e:Pr
emi
um paymentonheal
thand/
orhos
pit
ali
zat
ioni
nsur
anc
e Phi li
ppineBi l
li
ngs ,whi
leint
er nati
onalai
rc arri
ersthatdonothave
canno
tbe avai
led si
ncethe f
ami
ly gr
ossi
ncome i
s mor
ethan fli
ght stoand f rom thePhilippinesbutnone t
heles
searni nc
ome
P250,
000f
orthetaxabl
eyear
. from o t
herac ti
viti
esinthecount rywil
lbet axedatthenormalrate
of30% ofs uchincome.(SouthAf ric
anAirway sv.CIR,GR 180356,
Fe b.16,2010)

Q:Maru Corp.i
sa f
orei
gn corporat
ion dul
y organi
zed and
exi
sti
ng under t
he l
aws of Japan and dul
yli
censed t
o
engagei
nbus
inessunderPhi
lippi
nel
aws.At
lant
icGul
fand
Q:How muchi
shi
sincomet
axpayabl
e? Paci
fic Co. of Mani
la (
AGP) decl
ared and pai
d cash
A:Fr
om t
het
axabl
einc
omeofP300,
000,t
heappl
icabl
erat
eis
: di
vidends t
o pet
iti
oner and wi
thhel
dthe correspondi
ng
OverP250,
000butnotoverP500,
000P50,
000+30% o
fthee
xces
s finaldi
vidend t
axt
hereon.Subsequent
ly,Maru cl
aimed f
or
overP250,000 t
heref
undori
ssuanceofat
axcredi
trepresent
ingprofitt
ax
Thus,theincometaxpayabl
eis: remi
ttance erroneousl
y pai
d on t
he di
videndsremi
tted by
Over250,000P50,000 AGP.Marucont
endst
hati
tisares
identf
orei
gncorporat
ion
Excessx30% ( 000x30%)15,
50, 000 subj
ectonl
ytot
he10% i
ntercorporat
efinalt
axondi
vidends
INCOMETAXPAYABLEP65, 000 recei
ved f
rom a domes
tic corporat
ion i
n accordance wi
th
Sec.24c[
1]oft
heNI
RC.I
sthecont
ent
ionofMarucorrect
?
Q:Assume t
hatX i
s a non-
resi
dental
ien notengaged i
n A:No,t
hedi
videndi
ncomer
emi
ttedt
oMar
uar
isi
ngf
rom i
tsequi
ty
t
radeorbusi
ness.Heearnedgrossi
ncomei
ntheamountof invest
ment sinAGP o fMani laisc ons
ideredseparat
eand dis t
inct
P1.
5 mi
lli
on f
rom hi
soneni
ghtconcerti
nthe Phi
lippi
nes. incomef rom thebranc h offic
ei nthePhi l
ippi
nes.Ther ecan beno
How muchwi
llhepayasi
ncomet
ax? otherlogi
c alconc
lusiont hatt heinvest
mentwasmadef orpurposes
A:Si
nceXi
sanon-
res
idental
ienno
tengagedi
ntr
adeo
rbus
ines
s, peculi
arlygermanet ot hec onductofthecorporateaffai
rstoMar u,
hisgr
ossi
ncomewi thi
nthePhi l
ippinesi
ss ubj
ectto25% finaltax but certainly not of t he br anchi n the Phili
ppines.(CI R v.
and i
s not al
lowed any deduc
tions.Accordi
ngly he mus t pay Mar ubeni,GR137377 ,De c
.18,2001)
P375,
000(
1,500,
000x25%)

Q:Xwashi
redbyYt
owat
choverY’
sfis
hpondswi
thasal
ary Q:WanderI
nc.i
saDC ownedbyGl
aroLt
d.(
Swi
tzer
land)-a
ofP10,
000.Toenabl
ehi
mtoperf
orm hi
sdut
ieswel
l,hewas f
orei
gnservi
cecorporat
ionnotengagedi
ntradeorbusi
ness
al
so provi
ded a smal
l hut
, whi
ch he coul
d use as hi
s i
nthe Phi
lippi
nes.Wander remi
tsdi
vidends t
oit
sparent
res
idence i
nthe fishponds.I
sthe f
airmarketval
ue oft
he company outofwhi
ch Wanderwi
thhol
ds35% and payst
he
useoft
hesmal
lhutbyX a“
fri
ngebenefit
”thati
ssubj
ectt
o samet
otheBI
R.Wanderfil
edacl
aimf
orref
und,cont
endi
ng
t
he32% t
axi
mposedbySec.33oft
heNI
RC? t
hati
tisl
iabl
eonl
yfor15% wi
thhol
dingt
axandnot35% as
A:No,X i
snei
theramanager
ialnoras
uper
vis
oryempl
oyee.Onl
y provi
dedi
ntheNI
RC.I
sWanderent
itl
edt
othepref
erent
ial
manager i
alors
uper vis
oryemployeesareenti
tledtoaf r
ingebenefit rat
eof15% wi
thhol
dingt
axon t
hedi
videndsi
tremi
tted t
o
subjec
tt othe FBT.Even as s
umi ng thathe isa manager ialor Gl
aro?
supervis
oryemployee,thesmallhutisprovi
dedf o
rt heconvenienc
e A:Yes
,unde
rthe NI
RC,di
vidends r
ecei
ved f
rom a domes
tic
oftheempl o
yer
,henc edoesnotc onst
itut
eat axablefri
ngebenefit. corpor ation i sl iablet ot ax,the t ax r ates hallbe 15% oft he
(
Sec RC)(
.33,NI 2001BarQues
tion) dividendsr emi tted,s ubjectt ot he condi t
ion thatt he count ryi n
whi c ht henon- residentc orporations hallallow ac redi tagainstthe
Q:CREBA assai
lst
he cons
tit
uti
onal
ity of MCI
T on t
he taxduef rom t henon- residentcor porati
ont axesdeemedt obepai d
cont
ent
ion t
hati
tvi
olat
esdueprocess.I
sthei
mposi
tion of in t he Phi lippi nes equi valent t o 20% whi ch r epresentst he
MCI
Tuncons
tit
uti
onal
? differ encebe tweent her egulart axof35% onc orpor ationsand15%
A:No,t
hei
mpos
iti
ono
fMCI
Tisno
tvi
olat
iveofduepr
oces
sfo
rthe taxondi vidends .
fol
lo wingr easons : Int he i ns tant c ase,Swi tzerl
and di d no ti mpos e any t ax on
1.MCI Ti si mpos edongr ossincomeandno tc apital .Thus,itisno t dividends r ec eived by Gl aro. Suc h f act, howe ver,s hould be
arbitrar yorc onfiscatory. cons ide red asa f ullsatisfacti
on oft hegi ven c ondi ti
ons.Todeny
2.I tisno tan addi ti
onalt axi mposition buti simpos edi nlieu of Wandert owi t hholdt he15% t ax wouldr un count ert othever y
normalne tincomet axando nlyifsaidt axi ssus pi
c iouslylow. spir i
tandi nt entofs aidl aw.(CIRv .Wande rPhi lippine sInc.,GRL-
3.Ther ei s no l egalobj e cti
on t o a br oadert ax bas eo rt axable 68375,Apr .15,1988)
incomer es ult
ingf rom t heel i
mi nati
onofal ldeduc tibl
ei t
emsand, Not e:TheNCI Tr ateatt het i
met hec asewasdec idedwass ti
ll35%
atthes amet i
me,r educ tionoft heappl icablet axr at e.Inasmuc has no
witi
s30%.
deduc tionsar eamat terofl egisl
ativegr ace,Congr es shast hepo wer
toc ondi t
ion,limi tordenydeduc ti
onsf rom gr ossinc omei nordert o Q:Ral
ph Donal
d,an Ameri
can ci
tizen,wasa t
op execut
ive
arriveatt hene tt hati tc hoosest otax.( CREBA,I nc .v.Romul o,et ofaU.
Scompanyi
nthePhi
lippi
nesunt
ilheret
iredi
n1999.
al.
,GR160756,Mar .9,2010) Hecamet
oli
ket
hePhi
lippi
nessomuch t
hatf
oll
owi
nghi
s
ret
irement
,he deci
ded t
o spend t
he res
tofhi
sli
fei
nthe
count
ry. He appl
ied f
or and was grant
ed permanent
res
idents
tat
us t
he f
oll
owi
ng year
.Int
he spri
ng of2004, donat
ionswer
emademor
tisc a,henc
aus e,t
hepr
oper
tiesdonat
ed
whi
le vacat
ioni
ng i
n Orl
ando Fl
ori
da USA,he suffered a s
hal
lbei
ncl
udedaspar
tofA'
sgr
osses
tat
e.(
2001BarQues
tion)
heartat
tack and di
ed.Att
he t
ime ofhi
sdeat
h he l
eftt
he
f
oll
owi
ngpropert
ies: Q:Supposean empl
oyert
akesal
ifei
nsurancepol
icyon t
he
a. Bank deposi
tswi
th Ci
tibank Makat
iand Ci
tibank l
ifeofan empl
oyeewheret
heempl
oyeri
sdesi
gnat
ed ast
he
Orl
andoFl
ori
da; benefici
ary,whatarei
tst
axi
mpl
icat
ions?
b. Res
thousei
nOrl
ando,Fl
ori
da; A:Thepr
emi
umspai
dbyt
heempl
oyerwi
llno
tbededuc
tibl
efr
om
c. A condomi
nium uni
tinMakat
i; itsempl oyer’
sgrossincome( Sec
.36[ A]
[4],NIRC) .Nei t
herwi llitbe
d. Shares ofs
tock i
nthe Phi
lsubs
idi
ary oft
he U.
S includedi nthegr ossincomeoft heempl oyee-benefic
iarybas edon
companywhereheworked; Se c
.32( B)(1)
,NI RC.Ho we ver,t
hel i
fei
ns urancepr oceedswi l
lform
e. Shares of s
tock i
n San Mi
guelCorporat
ion and partoft hegr ossestat
eoft hedecedentempl oyeeifhi sdesignation
PLDT isre voc
able.Conversel
y ,ifthedesignati
oni sirrevocable,i
twi llnot
f
. Sharesofs
tocki
nDi
sneyWorl
dinFl
ori
da form par tofhisgros
ses tate.
g. U.
Streasurybonds
h. Proceedsf
rom a l
ifei
nsurance pol
icy i
ssued by a Q:I
fthepropert
yinsuredwasdes
troyedaf
tert
het
axpayer’
s
UScorporat
ion. deat
h,wi
lli
tst
illf
orm partoft
hegrosses
tat
e?
Whi
ch of t
he f
oregoi
ng asset
s shal
l be i
ncl
uded i
nthe A:No,i
twi
llbec
ons
ider
edasar
ecei
vabl
eoft
hees
tat
e.
t
axabl
egrosses
tat
eint
hePhi
lippi
nes?Expl
ain.
A:Al
loft
hepr
oper
tiesenumer
atede
xcept(
h),t
hepr
oceedsf
rom Q:Ant
oni
a Sant
os,30 yearsol
d,gai
nful
ly empl
oyed,i
sthe
lif
ei nsur anc e,ar ei nc
luded int he taxable gr osse statei nt he si
ster ofEduardo Sant
os.She di
ed i
n an ai
rpl
ane crash.
Phi lippines .Ral ph Edgardo i
sa l
awyer and he negot
iat
ed wi
tht
he ai
rli
ne
Donal disc ons ider edar esi
dentali
enf ortaxpur posessincehei san company and i
nsurance company and t
hey were abl
eto
Aer icanc itizenandwasaper manentr esidento fthePhi li
ppinesat agree t
o set
tlementofP10 mi
lli
on.Thi
sis whatAnt
oni
a
thet imeo fhi sdeat h.Theval ueoft hegr osses tateofar esident woul
d have earned as somebody who was gai
nful
ly
alien dec edents hallbede t
ermined byi ncludingt heval ueatt he empl
oyed.Edgardowasheronl
yhei
r.
time ofhi s deat h ofal lpropert
y ,realo r per sonal,tangibleo r 1. I
stheP10mi
lli
onsubj
ectt
oes
tat
etax?
intangi ble,whe r evers i
tuated.(Sec.85,NI RC)Theo theri t
em,( h) 2. Shoul
dEdgardoreportt
he10mi
lli
onashi
sincome
pro ceedsf rom al ifeinsurancepoli
c y
,mayal sobei ncludedont he bei
ngAnt
oni
a’sonl
yhei
r?
ass umpt ion t hati twasRal ph Donaldwhot ookoutt hei nsurance A:
uponhi so wnl ife,payabl euponhisdeat ht ohi ses t
ate.(Sec.85[E], 1. No.Thees tatet axi sat axont hepr i
vilegeenj oyedbyan
NI .(
RC) 2005BarQues
tion) individuali nc ont roll
ingt hedi spositi
ono fhe rpr operties
tot akeeffe ctupon herdeat h.TheP10 mi llion isno ta
Q:JoseOrt
izowns100hect
aresofagri
cul
turall
andpl
ant
ed proper tye xist
ing att he t i
me oft he dec e dent ’
s deat h;
wi
th coconutt
rees.He di
ed on May 30,1994.Pri
ort
o hi
s henc eitc anno tbes aidt hats hee xerci
sedc ont rolo verits
deat
h,t
hegovernment
,byoperat
ion ofl
aw,acqui
redunder dispos i
tion.Sinc et hepr ivil
eget ot r
ans mi tpr opert yisno t
t
he Comprehensi
ve Agrari
an Ref
orm Law al
l hi
s exerc i
sed by t he de c edent,t he es t
atet ax c anno t be
agri
cul
turall
andsexceptfive(
5)hect
ares.Upont
hedeat
hof impos edt hereon.
Ort
iz,hi
swi
dow asked you how she wi
llconsi
dert
he 100 2. No.Theamountr eceivedi nas ettlementagr eementwi th
hect
aresofagri
cul
turall
andi
nthepreparat
ionoft
hees
tat
e theai rli
nec ompanyandi nsuranc ec ompanyi sanamo unt
received f rom t he ac ci
dent i nsuranc e c overing t he
t
axret
urn.Whatadvi
cewi
llyougi
veher?
pass engeroft heai rlinec ompanyandi si nt henat ureo f
A:The100he
ctar
eso
flandt
hatJos
eOr
tizo
wnedbutwhi
chpr
ior
compens ati
on f or pe rsonal i njur i
es and f or damages
tohisdeat
h on May 30,1994 wereacquir
ed by t
hego ver
nment
sustainedo n ac countofs uchi njuries,whi c hi se xc l
uded
underCARParenolongerpartofhistaxabl
egrossest
ate,withthe
from t he gr os si ncome of t he r eci
pi ent.( 2007 Bar
exc
epti
onoftheremai
ningfive(5)hec
tareswhichunderSec .78{
a)
Ques
tion)
oft
heTaxCodes
til
lfor
mspar
tof"
dec
edent
'si
nter
est
".(
1994Bar
Ques
tion)
Q:Yourbachel
orcl
ient
,aFi
lipi
noresi
dingi
n Quezon Ci
ty,
want
sto gi
ve hi
ssi
ster a gi
ftofP200,
000.He seeks your
advi
ce,f
or purposes of reduci
ng i
f not el
imi
nat
ing t
he
donor'
staxont
hegi
ft,onwhet
heri
tisbet
terf
orhi
mtogi
ve
al
l of t
he P200,
000.
00 on Chri
stmas 2001 or t
o gi
ve
P100,
000.
00on Chri
stmas2001and t
heot
herP100,
000.
00on
January1,2002.Pl
easeexpl
ainyouradvi
ce.
A:Iwoul
dadvi
sehi
mtos
pli
tthedonat
ion.Gi
vingt
heP200,
000as
aone-timedonat ionwoul dmeant hati twillbes ubjectt oahi gher
tax br acket unde r t he gr aduat ed t ax s truc tur
e t hereby
necessi
tating the payment ofdonor 'stax.On t he o the r hand,
spli
tti
ngt hedonat i
oni ntotwoequalamount sofP100, 000gi venon
Q:A,aged 90yearsand sufferi
ngf
rom i
ncurabl
ecancer
,on
twodifferentyearswilltotal
lyrelievet hedono rf r
om t hedonor ’stax
Augus
t1,2001 wrot
e a wi
lland,on t
he same day,made
becauset hefirstPl00,000donat ion int hegr aduat ed bracketsis
severali
nter-
vivosgi
ftst
o hi
schi
ldren.Ten daysl
ater
,he exempt( Sec.99,NI RC) .Whilet hedonor ’st axi sc omput edont he
di
ed.I
n your opi
nion,are t
he i
nter-
vivosgi
ftsconsi
dered cumulat i
vedonat i
ons,t heaggr egation ofalldonat ionsmadebya
t
ransf
ers i
n cont
empl
ati
on of deat
h f
or purposes of donorisal l
owedonlyo veronec alendaryear .( 2001BarQues tion)
det
ermi
ningpropert
iest
obei
ncl
udedi
nhi
sgrosses
tat
e?
A:Yes
.When t
hedonormakeshi
swi
llwi
thi
n as
hor
tti
meof
,or
simultaneousl
ywi th,t
hemaki ngofgi f
ts,thegiftsarec onsi
deredas
havingbeenmadei ncontempl
ationofdeat h.(Rocesv .Posadas,58
Phi l
.108).Obvious l
y,the int
ention oft he donorin maki ng the
inter-
vivosgi
ftsistoavoidtheimpositi
ono fthees t
atet axands i
nc e
the doneesarel ikewise hi
sforced heirswhoar ec alled upont o
inherit
,i t wil
lc r
eate a presumpt i
on j uri
st antum t hat said
 However
,the BI
Riss
ued an Es
tat
e Tax AssessmentNot
ice
demandi
ng payment of t
he defici
ency es
tat
etax.Di
zon
cl
aims t
hat i
n as much as t
he val
id cl
aims of credi
tors
agai
nstt
hees
tat
earei
nexcessoft
hegrosses
tat
e,noes
tat
e
Q:OnJune30,2000,Xt
ookoutal
ifei
nsurancepol
icyonhi
s t
ax wasdue.CTA ordered t
hatt
he es
tat
e shoul
d pay t
he
ownl
ifei
ntheamountofP2,
000,
000.Hedesi
gnat
edhi
swi
fe, es
tat
etaxl
iabi
lit
ywi
thi
nteres
t.
Y,asi
rrevocabl
ebenefici
aryt
oP1,
000,
000and hi
sson Z,t
o May t
he act
ualcl
aimsoft
he credi
torsbe f
ull
y al
lowed as
t
he bal
ance of P1,
000,
000,but i
nthe l
att
er desi
gnat
ion, deduct
ions f
rom t
he gross es
tat
e ofJose despi
tet
he f
act
reservi
ng hi
s ri
ght t
o subs
tit
ute hi
m f
or anot
her
. On t
hat t
he cl
aims were reduced or condoned t
hrough
Sept
ember1,2003X di
ed and hi
swi
feand son wentt
othe compromi
seagreement
sent
ered i
ntobyt
heEs
tat
ewi
thi
ts
i
nsurert
ocol
lectt
heproceedsofX’
sli
fei
nsurancepol
icy. credi
tors
1. Aret
heproceedsoft
hei
nsurances
ubj
ectt
oincome A:No.The c
lai
ms agai
nstt
he es
tat
e whi
cht
he l
aw al
lows as
t
ax on t
he part ofY and Z f
or t
hei
r respect
ive deduc ti
on f
r om the grossestat
e aree xi
sti
ng clai
msagai nstthe
shares?Expl
ain. estate.Anindebt ednessthathasbeencondonedi si
nl egaleffe
ctno
2. Are t
he proceedsoft
he i
nsurance t
oform partof indebtednessatal l.Ifthereisnomo reindebtednessbyr eason o
f
t
hegrosses
tat
eofX?Expl
ain. thec ondonat i
on,thereisnomor ecl
aim againstthees tat
ewhi ch
A: may be al l
o wed as a deducti
on.(Dizon,et.alv .CA,G. R.No.
1. No.Thel aw e xpl icit
lypr o videst hatt hepr o ceedsofl if
e 140944,Apr .30,2008)
insuranc epol i
c iespai dt ot hehei rso rbenefic iari
esupon
thedeat hoft hei ns ur edar ee xc l
udedf rom gr ossi ncome
and i se xempt f rom t axat ion. The pr oceeds o fl if
e
insuranc e r e cei ved upon t he deat h of t he i nsur ed Q:Whats
hal
lbet
hel
iabi
lit
yofaco-
deposi
torwhowasabl
e
constitut ea c ompens ation f ort he l oss ofl i
fe,henc ea t
owi
thdraw f
undsf
rom t
heaccountofadeceaseddeposi
tor
return ofc api tal ,whi chi sbe yond t he s c
ope o fi ncome wi
thoutpayi
ngt
hees
tat
etax?
taxation( Se c .32B( 1) ,NI RC) A:The
yshal
lbehel
dli
abl
efo
rper
jur
ybec
aus
eal
lwi
thdr
awals
lips
2. Onl yt he pr o ceedsof1, 000, 000. 00 gi ven t ot he son,Z, contai
n astat
ementtotheeffe
c tthatthei
rco-depo
sit
orsarestil
l
shallf or m par toft heGr ossEs tateofX.Undert heTax li
ving at t
he ti
me ofthe withdrawalby any one ofthe j
oint
Code,pr o ceedso fl i
fei ns uranc es hallf orm par toft he deposi
tor
sands uchs
tat
ementsar edeemedunderoath.
grosses tat eo ft hedec edentt ot hee xt ento ft heamount
receivabl ebyt hebenefic iarydes i
gnat ed i nt hepol i
cyof
Q:Remedi
os,aresi
dentci
tizen,di
ed on November10,2006.
thei ns ur anc ee xc eptwheni ti se xpres slys ti
pul atedt hat
She di
ed l
eavi
ng t
hree condomi
nium uni
tsi
n Quezon Ci
ty
thedes ignat ionoft hebenefic i
ar yi sir r
e vocable.Ass tated
val
ued at 5 mi
lli
on each.Rodol
fo was her onl
y hei
r.He
int hepr obl em,onl yt hedes ignat i
on o fY i si rrevocable
report
edherdeat
h onDecember6,2006andfil
edt
hees
tat
e
whi l
e t he i ns ur ed/dec edent r eser ved t he r i
ght t o
t
axret
urnonMarch30,2007.Becausesheneededt
osel
lone
subst i
tut e Z as benefic i
ar y f or ano ther per son.
uni
toft
hecondomi
nium t
opayf
ort
hees
tat
etaxsheasked
Accor dingl y ,t hepr oceedsr ecei vedbyY s hallbee xc l
uded
whi l
et hepr oc eedsr e cei
vedbyZs hallbei nc l
ude di nt he t
heCI
Rtogi
veheroneyeart
opayt
hees
tat
etaxdue.The
gross es tat e o f X. ( Se c. 85( E), NI RC) ( 2003 Bar CI
R approvedt
hereques
tofext
ensi
onoft
imeprovi
dedt
hat
Ques
tion) t
he es
tat
etax be comput
ed on t
he basi
s oft
he val
ue of
propert
yatt
het
imeofpaymentoft
ax.
1. DoesCI
R havet
hepowert
oext
end t
hepaymentof
Q:Mayt
henot
ari
alf
eepai
dfort
heext
raj
udi
cialset
tlement
es
tat
etax?
and t
heat
torney'
sfeesi
ntheguardi
anshi
p proceedi
ngsbe
2. Doest
hecondi
tion t
hatt
hebasi
soft
hees
tat
etax
al
lowed asdeduct
ionsf
rom t
hegrosses
tat
eofdecedenti
n
wi
llbe t
he val
ue att
he t
ime oft
he paymenthave
ordert
oarri
veatt
heval
ueoft
henetes
tat
e?
l
egalbas
is?
A:Al
though t
he Tax Code s
pec
ifies "
judi
cial e
xpens
es o
fthe
A:
testament aryo ri nt es t
at e pr oceedi ngs,"t her ei s no r eas on why
1. Yes.TheCI R mayal lo
w ane xtens i
onoft imet opa yt he
expens esi nc ur r edi nt headmi nistrationands ettlemento fanes tat e
estatet axift hepaymenton t heduedat ewoul di mpos e
in e xt rajudi c ial pr oc eedings s houl d no t be al lowed. Ho we ver ,
unduehar dshipupont hees tateoranyoft hehei rs.The
deduc t i
oni sl imi tedt os uchadmi nistratione xpens esasar eac tual ly
extensioninanyc ase,willno te xceed2year sifthees tate
andne ces sar il
yi ncur r edi nt hec ollec ti
ono ft heas se
tso ft hees t
at e,
isno tunderj udicialse t
tlemento f5year si fitisunder
paymentoft he debt s,and di stribution oft he r emainderamong
judici
als et
tlement .TheCI R mayr equiret hepos t
ingo fa
those ent itled t here to.Suc he xpens es may i nclude e xec utor'so r
bondt os ec
ur ethepaymentoft het ax.(Sec.91[B],NI RC)
admi ni strat or 'sf ees , at tor ney'sf ees ,c our tf ees and c har ges ,
2. No.Theval uat i
onofpr opertiesc ompr i
singt hees t
ateofa
appr ais er'sf ees ,c lerkhi re,c os t
so fpr eservinganddi stribut i
ngt he
decedenti st hef airmar ketasoft het imeo fdeat h.No
estateands t or ingo rmai nt ainingi t
,br oker agef eesorc ommi ssions
otherval uation dat eisal lowed byl aw.( Sec.88,NI RC)
forsel lingo rdi spos ingo fthees tate,andt hel i
ke.
(2007BarQues tion)
Deduc tible at tor ne y'sf eesar et hos ei ncur red by t he exec ut oror
admi ni strat ori nt he s ettlementoft hees tateori n defendi ng o r
prose cut ingc lai msagai nstorduet hees tate. Q:A t
axref
undwasfil
edbyat
axpayer
.Pendi
ngsai
dact
ion,
Attor ne y'sf ees ,on t heo the rhand,i n ordert obededuc tiblef r om t
axpayer di
ed.Wi
llt
he t
ax ref
und f
orm partofhi
s gross
thegr os ses t at emus tbees sentialt ot hes ettl
ementoft hees t
at e. es
tat
e?
Attor ne y'sf ees i nc ur red i nt he guar dians hip pr oceedi ng wer e A:I
t depends
.Ift
her
eisa l
egal and f
act
ual bas
is,i
t wi
ll
.
essent ialt ot hedi stribut i
ono fthepr opert yt othepe rsonsent i
tl ed Ot
her
wis
e,i
twi
llno
tbei
ncl
ude
d.
there to.Henc e,t he at torne y'sf eesi nc urred i nt he guar dians hi p
proceedi ngss houl dbeal l
owedasadeduc tionf rom t hegr os ses tat e
ofthede cedent .(CI Rv .CA,G. RNo.123206,Mar .22,2000)

Q:A,ani
ndi
vidual
,sol
dtoB,hers
ist
er-
in-
law,hi
slotwi
tha
Q: Duri
ng t
he proceedi
ng f
or t
he probat
e of Jose
marketval
ueofP1,
000,
000f
orP600,
000.A'
scos
tint
hel
oti
s
Fernandez’
ses
tat
e,Di
zon,t
headmi
nis
trat
or,reques
ted t
he
P100,
000.B i
sfinanci
all
y capabl
e ofbuyi
ng t
he l
ot.A al
so
probat
ecourt
'saut
hori
tyt
osel
lseveralpropert
iesf
ormi
ng
ownsX Co.
,whi
ch hasaf
astgrowi
ngbus
iness.A sol
d some
partoft
he es
tat
e,f
ort
he purpose ofpayi
ng i
tscredi
tors.
ofhers
haresofs
tocki
nX Co.t
oherkeyexecut
ivesi
nX Co.
Theseexecut
ivesarenotrel
atedt
oA.Thesel
lingpri
cei
sP3, oft het woval uesment ionedaspr ovi dedunde rSec .81oft heTax
000,
000,whi
chi
sthebookval
ueoft
hesharessol
dbutwi
tha Code.
marketval
ueofP5,000,
000.A'
scosti
nthesharessol
disP1, 2.Nobec aus et hec omput ationoft hegi ftt axi scumul ativebutonl y
000,
000.ThepurposeofA i
n sel
lingt
hesharesi
stoenabl
e insofarasgi ftsmadewi thi nt hes amec alendaryear .
her key execut
ives t
o acqui
re a propri
etyi
nteres
tint
he Ther ei snol egalj us tificationf ort r
eat ingt wogi f
tseffe c t
edi nt wo
busi
nessand haveapersonals
takei
nit
sbus
iness.Expl
ain separ atec alendaryear sasonegi ft.
3.Di nogai nedani ncomeof19mi l
lionf rom t hes ale.Di noac quires
i
ftheabovet
rans
act
ionsaresubj
ectt
odonor'
stax.
ac arry-o verbas iswhi chi st hebas isoft hepr opertyi nt hehandso f
A:Thefir
stt
rans
act
ionwhe
real
otwass
oldbyA t
ohers
ist
er-
in-
thedo noro rP1mi llion.Thegai nf rom t hes aleo ro t
herdi sposition
law fora pr i
cebelowi tsf airmar ketvaluewi l
lno tbes ubje
c tto
ofpr oper tys hal lbet hee xc esso ft heamountr ealized t herefrom
donor 'staxifthelotqualifiesasac api t
alas set
.Thet rans f
erforless
overt hebas iso radj us t
ed bas isf orde ter mi ninggai n[ Sec .34(a),
thanadequat eandf ullcons iderati
on,whi c
hgi vesr iset oadeemed
NIRC] .Si nc et he pr oper t
y was ac quir ed by gi f
t ,t he bas isf or
gif
t,doesno tapplytoas al eo fpropertys ubjecttoc apitalgainst ax
determi ni nggai ns hal lbet hes ameasi fitwoul dbei nt hehandso f
(Sec.100,NI RC).
thedono ro rt hel as tpr e cedingo wne rbywhom t hepr oper tywasno t
Ho we ver,ifthelotsoldisanor dinaryas set,thee xc essoft hef ai
r
acquir edbygi ft .Henc e,t hegai ni sc omput edbyde duc tingt hebas i
s
mar ke tvalueo ve
rthec ons iderati
onr eceivedshal lbec ons i
deredas
ofP1mi llionf r om t heamountr eal izedwhi chi sP20mi ll
ion.
agi fts ubjec
tt othedonor '
st ax.Thes aleofs haresofs tockbel ow
4.I fthec ommer ciall otwasr eceivedbyi nhe rit
anc e,t hegai nf rom
thef airmar ketvaluether eofi ssubjecttot hedo nor'st axpur suant
thes al ef orP20mi l
lioni sP5mi ll
ionbec aus et hebas isist hef air
tothepr o
visi
onsofSec ti
on100oft heTaxCode.Thee xcessoft he
mar ke tval ueasoft hedat eofac qui si
tion.Thes t
epped- upbas i
sof
fai
rmar ketvalueoverthes ell
ingpr ic
ei sadeemedgi f
t.(1999Bar
P15mi l
l i
onwhi c
hi st heval uef ores t
at et axpur po sesi st hebas i
s
Ques
tion)
for de termi ning t he gai n. ( Sec. 34( b) (
2), NI RC) (1995 Bar
Ques
tion)
Q:When t
he donee or benefici
ary i
sa s
tranger
,the t
ax
payabl
e by t
he donor s
hal
lbe 30% oft
he net gi
fts.For
Q:Cebu ToyoCorp.
,an exportent
erpri
se,i
sasubs
idi
aryof
purposesoft
hist
ax,whoi
sas
tranger?
af
orei
gn corporat
ion dul
y regi
stered wi
tht
he Phi
lippi
ne
A:A s
tranger i
sthe one who i
s no
ta br
other
,si
ster
,spous
e,
Economi
c Zone Aut
hori
ty pursuantt
o PD 66 and i
s al
so
ancest
orand l
inealdesc
endant,o
rar elati
vebycons
anguini
tyin
regi
steredwi
tht
heBI
R asaVAT t
axpayer
.Itsel
ls80% ofi
ts
thecoll
ater
all
inewithi
nt he4t
hcivi
ldegreeoft
hedonee.(
Sec.98,
product
stoi
tsmot
hercorporat
ion,and t
heres
taresol
dto
NI (
RC)2000BarQues
tion)
vari
ous ent
erpri
ses doi
ng bus
iness i
nthe Mact
an Export
Not
e:Adonat
ioni
scons
ider
edmadet
oas
trangerwheni
tis
:
Processi
ng Zone.I
nasmuch as bot
hsal
es are consi
dered
I
. Betweenbusinessorgani
zat
ions
exportsal
essubj
ectt
o VAT at0% rat
e undert
he Nat
ional
I
I. Between an i
ndivi
dualandabus i
nes
sor
gani
zat
ion(
Sec
10B,RR02- 03) I
nternalRevenueCode,asamended,i
tfil
ed an appl
icat
ion
f
or t
ax credi
t/ref
und of VAT pai
d f
or t
he sai
d peri
od
represent
ingexcessVAT i
nputpayment
s.TheCI
R bel
iest
he
cl
aimf
orref
und.
I
sthegrantofa ref
und represent
ing unut
ili
zed i
nputVAT
t
oCebuToyoproper?
A:Yes
.Cebu To
yo i
s engaged i
ntaxabl
erat
her t
han e
xempt
trans actions.Taxabl etrans actionsar et hos et rans actionswhi char e
Q:Kennet
hYusophownsacommerci
all
otwhi
chshebought
subjec ttoval ue-addedt axei theratt her ateo ft enpe r c
ent( 10%)or
manyyearsagof
orP1Mi
lli
on.I
tisnow wort
h P20Mi
lli
on
zero per cent (0%).I nt axabl et rans actions ,t he s eller shallbe
al
though t
he zonalval
ue i
sonl
y P15 Mi
lli
on.She donat
es
entitledt ot axc r
editfort heval ue-addedt axpai donpur chasesand
one-
hal
fpro-
indi
vioi
s nt
eres
tint
hel
andt
oherson Di
noon
leaseso fgoods ,propertiesors ervices.Ane xempt i
onmeanst hatt he
31 December 1994, and t
he ot
her one-
hal
f proi
ndi
vis
o
saleo f goods ,pr operties or s ervices and t he us eo rl ease of
i
nteres
ttot
hesamesonon2January1995.
proper tiesi sno tsubjectt oVAT ( out putt ax)andt hes ell
eri sno t
1.How much i
sthe val
ueoft
he gi
ftsi
n 1994and 1995f
or allowedanyt axc reditonVAT ( inputt ax)pr evious l
ypai d.A VAT-
purposesofcomput
ingt
hegi
ftt
ax? registeredpur chaserofgoods ,proper tiesors ervicest hatar eVAT
1. Expl
ain. exempt ,isno tent i
tledt oanyi nputt axons uchpur chas esdes pite
2. TheRevenueDi
stri
ctOfficerques
tionst
hespl
itt
ing thei ssuanc eofaVAT i nvoi ceo rre c
ei pt.Undert hes ys t
em,az ero
oft
he donat
ionsi
nto 1994 and 1995.He sayst
hat rated s ale by a VAT- r
egi st
ered pe rson, whi ch i sa t axabl e
si
nce t
here were onl
ytwo (
2)daysseparat
ing t
he trans actionf o
rVATpur pos es ,shallno tr esul tinanyout putt ax,but
t
wodonat
ionst
heyshoul
dbet
reat
edasone,havi
ng the inputt ax on hi s pur chas e ofgoods ,pr operti
es or s ervices
beenmadewi
thi
noneyear
.Ishecorrect
?Expl
ain. related t os uchz erorated s ales hallbeavai lableast ax c reditor
3. Di
nosubsequent
lysol
dthel
andt
oabuyerf
orP 20 refund( CI Rv .Ce bu Toy oCor poration,G. R.No.149073,Fe b.16,
Mi
lli
on.How much di
d Di
no gai
n on t
he sal
e? 2005) .
Expl
ain.
4. Suppose,i
nst
ead of recei
ving t
he l
ot by way of Q:Arecont
ribut
ionst
oacandi
dat
einanel
ect
ions
ubj
ectt
o
donat
ion,Di
norecei
vedi
tbyi
nheri
tance. donor'
stax?Ont
hepartoft
hecont
ribut
or,i
sital
lowabl
eas
Whatwoul
dbehi
sgai
nont
hesal
eoft
hel
otf
orP20Mi
lli
on? adeduct
ionf
rom grossi
ncome?
Expl
ain. A:No,pr
ovi
ded t
he r
eci
pientc
andi
dat
e had c
ompl
ied wi
tht
he
A: requirement f or fil
ing ofr et
urns of c o ntr
ibutions wi th t he
1.Theval ueoft hegiftsforpur poseso fcomput ingt hegifttaxs hall Commi ssi
ononEl ecti
onsasr equiredundert heOmni busEl e
ction
beP7 .5milli
on in 1994andP7 .5mill
ion in 1995.I n valuingar eal Code.Thec ont r
ibutorisno tallowed todeduc tthec ontr
ibutions
propertyforgifttaxpur posest heproper tyshoul dbeappr ais
edat becaus et he saide xpensei s not di r
ectl
y at tri
but ablet o, the
thehigheroft woval uesasoft hetimeo fdonat ionwhi char e(a)the development ,management ,operation and/orc onducto fa trade,
fai
rmar ke tvalueasde termi nedbyt heCommi ssioner(whi c
hi sthe businesso r profess
ion. Furthermor e, i
ft he candi datei s an
zonalvaluefixedpur suantt o incumbent Go vernment offic
ial or empl oyee, it may e ven be
Secti
on16( e)oftheTaxCode) ,or(b)thef ai
rmar ketvalueass ho wn consideredasabr i
beo rakickback.(1998BarQues t i
on)
inthes cheduleofvaluesfixedbyt hePr ovinci
alandCi tyAs sessors.
Thef actthatt hepr opertyi swor th P20mi ll
ion asoft hetimeof Q:X i
saf
riend ofY,t
hechai
rman ofPol
iti
calPart
yZ,who
donationisimmat er i
alunl essitcanbes ho wnt hatt hisvalueisone want
sto run f
orPres
identi
nthe 2004 el
ect
ions.Knowi
ng
t
hatY needsf
undsf
orpos
tersand s
treamers,X i
sthi
nki
ng
ofdonat
ingt
oY P150,000.
00f
orhercampai
gn.Sheasksyou
whet
herheri
ntended donat
ion t
o Y wi
llbe subj
ectt
othe Q: Purs
uant t
o t
he pri
vat
izat
ion program of t
he
donor'
stax.Whatwoul
d youranswerbe?Wi
llyouranswer government
,Nat
ional Devel
opment Company (
NDC) s
old
be t
he same i
f she were t
o donat
eto Pol
iti
calPart
yZ fiveofi
tsvessel
stoMagsaysayLi
nesI
nc.(
Magsays
ay)
.Int
he
i
nst
eadoft
oYdi
rect
ly? sal
es cont
ract i
t provi
des t
hat VAT shal
lbe pai
d by t
he
A:Thedonat
iont
oY,o
nces
hebec
omesac
andi
dat
eforanel
ect
ive purchaser Magsaysay Li
nes.Magsaysay asked BI
R f
or a
post
,isno tsubj
ecttodono r
'staxpr o
videdthatshec ompli
eswi th f
ormalreques
tfora rul
ing whet
hersai
d purchasers
houl
d
the requir
ement of fili
ng r et
urns of c ontr
ibuti
ons wit h the
payVAT onaccountofsuchsal
e.BI
R hel
dthati
tisl
iabl
eto
Commi ssi
ononEl ec
tionsasr equiredundert heOmni busEl ecti
on
payVAT.TheCTA reversed t
hes
ameon t
heground t
hati
t
Code.
wasnotdonei
ntheordi
narycourseofbus
inessofNDC.
Theans werwould bet hes amei fX had donated theamountt o
I
sMagsaysayl
inesl
iabl
etopayVATonsuchsal
e?
Poli
tic
alPar t
yZi ns
teadoft oY dir ect
lybecausethelaw placesin
A:No.VAT i
sat
axl
evi
edonl
yont
hes
ale,bar
tero
rexc
hangeof
equalfoot
inganyc o
nt r
ibuti
on toanyc andi
date,poli
tic
alpar tyor
goodsors ervicesbyper sonswhoengagei ns uc h act
ivit
ies,inthe
c
oal
iti
ono
fpar
tiesf
orc
ampai
gnpur
pos
es.(
Sec
.99(
C) RC)(
,NI 2003
courseoft radeorbus ines s.The" c arr ying on bus i
ness"doesno t
BarQues
tion)
mean t he per for manc e ofa s i
ngle di s connec ted act,butmeans
conducting,pr os e
c uti
ng and c ontinui ng bus iness by per f
or mi
ng
Q:TheCongregat
ion ofMaryI
mmacul
atedonat
ed aparcel progres
s ivelyal lt heac tsnor mallyi nc identt her eof;whi l
e" doi
ng
ofl
andandadormi
torybui
ldi
ngl
ocat
edal
ongEspanaSt
.in busines
s "c onve yst heideao fbusines sbei ngdone,no tfrom t i
met o
f
avorofSi
stersoft
heHol
yCross,agroupofnunsoperat
ing time,butal lthet ime." Cour seofbus ines s"iswhati susuallydone
af
reecl
ini
candhi
ghschoolt
eachi
ngbasi
cspi
rit
ualval
ues. inthemanagementoft r adeorbus ines s.
I
sthedonat
ions
ubj
ectt
odonor’
stax? Theac tofNDC i ns ell
ingt heves sel swasno tdo neint her egular
A:No.Gi
ftsi
nfavorofeduc
ati
onaland/
orc
har
itabl
e,r
eli
gious
, manner ,no tint heor dinaryc ourseoft radeo rbus iness.Inf actt
he
socialwelfarec orporation orc ult
urali nsti
tuti
on,ac credi
ted non- salewaseffe ctedonl ybec auseo fthepr ivatization program ofthe
governmentor ganization,t rusto r phil
anthropic organiz
ation or government t hus t he s ale was no ts ubjectt o VAT. ( CI R v.
researchi nsti
tution oror ganizati
on aree xemptf rom donor’stax, Mags ay
s ayLi ne sI nc.
,G. R.No.146984,Jul y28,2006)
provided,t hat,no mor et han 30% of t he gif
ts ar e used for
admi nist
rationpur poses .Thedonat ionbeingi nthenat ur
eo freal
propertyc omplieswit htheut il
izati
onr equirement.(Sec.101[A][
3], Q: SEAGATE i
s a res
ident f
orei
gn corporat
ion dul
y
NIRC)( 2007BarQues t ion) regi
steredwi
tht
heSEC t
odobus
inessi
nthePhi
lippi
nes.I
t
i
s al
so regi
stered wi
th t
he PEZA t
o engage i
n t
he
Q:Mr
.A,a VAT-
exemptret
ail
er sel
lst
o Mr
.O,a non-
VAT manuf
act
ure of recordi
ng component
s pri
mari
ly used i
n
exemptpurchaser
.IsMr
.O l
iabl
etopay comput
ersf
orexport
.SEAGATE i
sa VAT-
regi
stered ent
ity.
VATont
het
ransact
ion? Anadmi
nis
trat
ivecl
aimf
orref
undofVAT i
nputt
axesi
nthe
A:Yes
.Thepur
chas
eri
ssubj
ectt
oVATbec
aus
eiti
sme
rel
yadded amountofP28,369,
226.
38 wi
th support
ing document
swas
aspartofthepurchas
epr ic
eandno tasat
axbec
aus
et heburdeni
s fil
ed wi
th Revenue Di
stri
ct Office i
n Cebu. The
merel
ys hif
ted.Thesell
eri sst
ille
xemptbec
aus
eitcouldpasson admi
nis
trat
ivecl
aimf
orref
und wasnotact
ed upon by t
he
theburdenofpayi
ngthet axtothepurc
has
er. pet
iti
onerprompt
ing t
herespondentt
o el
evat
ethecaset
o
t
heCTA.TheCI
R cont
endedt
hats
ince‘
taxesarepres
umed
Q:Li
ly’
sFashi
onI
nci
sagarmentmanuf
act
urerl
ocat
edand t
o have been col
lect
ed i
n accordance wi
th l
aws and
regi
stered asa Subi
c Bay FreeportEnt
erpri
se underR.
A. regul
ati
ons,Seagat
ehast
heburden ofprooft
hatt
het
axes
7227andanon-
VAT t
axpayer
.Andassuch,i
tisexemptf
rom sought t
o be ref
unded were erroneousl
y or i
llegal
ly
paymentofal
llocaland nat
ionali
nternalrevenue t
axes. col
lect
ed.Unf
ort
unat
ely,Seagat
efai
ledt
odoso.
Duri
ng i
ts operat
ions,i
tpurchased vari
ous suppl
ies and I
sSeagat
eent
itl
ed t
otheref
und ori
ssuanceofTax Credi
t
mat
eri
als necessary i
nthe conduct ofi
ts manuf
act
uri
ng Cert
ificat
e represent
ing al
leged unut
ili
zed i
nputVAT pai
d
busi
ness. The suppl
ier of t
hese goods shi
fted t
o Li
ly’
s oncapi
talgoodspurchased?
Fashi
on, I
nc. t
he 10% VAT on t
he purchased i
tems A:Yes
.Nodoubt
,asaPEZA-
regi
ster
edent
erpr
isewi
thi
nas
pec
ial
amount
ingt
oP500,
000.Li
ly’
sFashi
onI
nc.fil
edwi
tht
heBI
R economi cz one,i ti sent it l
ed t ot hefis c
ali nc ent ivesand benefit s
a cl
aim f
or ref
und f
or t
he i
nputt
ax shi
fted t
oitby t
he pr ovided fori n ei therPD 66o rEO 226whi ch woul d no ts ubj ec t
suppl
iers.I
fyouweret
heCI
R wi
llyoual
low t
heref
und? responde nt toi nt ernal r evenue l aws and r egul at ions f or r aw
A:No.Thee
xempt
iono
fLi
ly’
sFas
hionI
nc.i
sonl
yfo
rtaxeswhi
chi
t mat erials
,s uppl i
es ,art i
c l
es ,e tco rwoul dbeent itledt oi ncomet ax
i
sdi
rec
tlyl
iabl
e,henc
e,i
tcanno
tcl
aime
xempt
ionf
ort
axs
hif
tedt
o hol i
day; addi ti
onal deduc tion f o rl abor e xpens e, e tc .I ts hal l,
i
t,whi
chi
sno
tatal
lcons
ider
edat
axt
othebuye
rbutpar
toft
he mor eover,e njoyal lprivi leges ,benefit s,advant ageso re xempt i
ons
pur c
hasepr
ic e.Lil
y’sFas hi
onI nc.i
sno tat axpayerins
of arasthe underbo t
hRepubl icAc tNos .7227( dut y-
freei mpor t
at ion)and7844
pas s
ed-
on t
ax i sc oncerned and therefore,itcannotclaim fora (taxc redits
).Thus ,Seagat eenj oyspr eferent ialt axt reat ment .The
refundofat axmer ely,shif
tedt oit.Onl ytaxpayer
sareal l
owedto VAT on c apitalgoo dsi san i nter nalr evenuet ax f rom whi cht he
fil
eac l
aimforr ef
und.( 2006BarQues t
i on) ent ityi sexempt .Al thought het rans ac ti
onsi nvol vings uc ht axar e
no te xempt ,Seagat easaVAT- r egister edpe rson,ho we ver ,isent itled
Q:Aredonat
ionsf
orpol
iti
calcampai
gn purposesexempt
ed tot heirc redits.Si ncet hepur chas esofSeagat ear eno te xemptf rom
f
rom donor’
stax? theVAT,t her atet obeappl i
edi sz ero.I tse xempt ionunderbo t hPD
A:Anyc
ont
ribut
ion i
ncas
hori
n ki
ndt
oanyc
andi
dat
e,pol
iti
cal 66andRA7916effec ti
vel ys ubj ect ss uc htrans ac tionst oaz eror at e,
par
ty,orcoali
tion ofpart
iesforc
ampaign purpos
es,repor
ted t
o bec aus ethee cozonewi thi nwhi chi ti sr egister edi smanagedand
COMELEC s hallno tbesubjec
ttopaymento fany gi
fttax (
Sec. oper atedbyt hePEZA asas epar atec ustomst er ritor y.Thi smeans
99[
C],NIRC;RR2- 2003) thati ns uc hz onei sc reat ed t hel egalfic t
ion off orei gn t err i
tor y.
Undert hec ross-bor derpr inc i
pl eoft heVAT s ys tem bei ngenf orc ed
byt heBI R,noVAT s hal lbei mpos ed tof or m par toft hec osto f
goodsdes ti
nedf orc ons umpt ionout sideo fthet er ritor ialbor dero f
the t axing aut hor i
ty.I fe xpor ts ofgoods and s er vic es f rom t he
Phi lippinest oaf oreignc ount r yar ef reeoft heVAT,t hent hes ame
rule hol dsf ors uche xpor tsf rom t he nat i
onalt err itor y- -e xcept
speci
fic
ally dec
lared areas -
-to an ec oz
one. (CIR v. Se
agat
e Q:Aregrossrecei
ptsderi
vedf
rom sal
esofadmi
ssi
ont
icket
s
Technology(Phi
lippi
nes)
,G.R.No.153866,Feb.11,2005) i
nshowi
ngmot
ionpi
cturessubj
ectt
oVAT?
A:No.The l
egi
slat
ive i
ntenti
s no
ttoi
mpos
e VAT on per
sons
Q:Anshari
,an al
ien empl
oyee ofAs
ian Devel
opmentBank alreadyc ove redbyt heamus ementt ax.
(
ADB)whoi
sret
iri
ngsoonhasofferedt
osel
lhi
scart
oyou, Ther epealbyt heLoc alGo vernmentCodeof1991o ft heLocalTax
whi
ch he i
mport
ed t
ax-
free f
or hi
s personal use. The Code t r ans ferring t he po wer t oi mpose amus ement t ax on
pri
vil
ege of exempt
ion f
rom t
ax i
s recogni
zed by t
ax cinema/ t heat reoper atorsorpr opr i
et orstothel oc algo vernmentdid
aut
hori
ties.I
fyou deci
de t
o purchase t
he car
,ist
he sal
e no tgrantno rr estoret hes aidpo wert othenat ionalgo vernmentnor
subj
ectt
otax?Expl
ain. didi texpandt hec over ageofVAT.Si ncet heimpos itionofat axisa
A:Yes
.Thes
alei
ssubj
ectt
otax.Sec
.107 (
B)o
ftheTax Code bur den on t he t axpayer ,i tc anno tbe pr esumed no rc an itbe
extendedbyi mpl i
cat i
on.Asi ti s,thepo wert oi mpos eamus ement
provi
dest hat“Inc ase oftax-f
ree i
mpor t
ation ofgoodsi ntothe
tax on c inema/ theat r
eoper ator so rpr opri
e t
or sr emai nswiththe
Phili
ppinesbype rsons,enti
tiesoragenciese xemptfrom tax,where
localgo ver nment .
thegoodsar esubs equently
,s ol
d,transf
er redore xchanged inthe
A c ontr ar y r ul i
ng wi l
ls ubj ectc inema/ t
heat re oper at
ors or
Phili
ppines to non- e
xempt persons or ent iti
es,the pur c
hasers
,
propr ie
t orst oat otalof40% t ax,t he10% VAT bei ngont opofthe
transf
ereesorrecipientsshallbeconsi
der edat heimpor t
ert her
eof
,
30% amus ementt ax i mpos ed by t he Loc alGo ver nmentCode of
who s hall be liablef or any internal r evenue tax on s uch
1991,t her ebyki l
li
ngt he“ *goos e+t hatl aysthegol denegg*s +.”
(CIR
i
mpor
tat
ion.(
2005BarQues
tion)
v.SM Pr imeHo ldings ,Inc.,G.R.No.185305,Fe b.26,2010)