Module 1 General Principles of Taxation 1.

Derived from existence of the State itself

2. Exercisable even without constitutional
Elements of a State grant
1. People 3. Way of state to interfere with private
2. Territory rights
3. Government 4. Primarily exercised by the legislature
4. Sovereignty
5. Exercised for public purpose
6. Attributes of sovereignty
The three branches of the government
[Link] an equivalent compensation
1. Legislative – Vested in the
Congress (Senate and House of
Differences of the Fundamental Powers
Representatives, except those reserved to
the people by the provision on initiative and
referendum.) (Sec 1, Art VI, 1987
Constitution)
2. Executive – Vested in the President.
(Sec 1, Art VII, ibid)
3. Judiciary – Vested in the Supreme
Court and lower courts. (Sec 1, Art VIII, ibid)

Fundamental Powers of the State

[Link] power- Power to prescribe
regulations to promote the health, morals,
peace, education, good order of safety and
the general welfare of the people.(Primicias
v. Fugoso, 80 Phil. 71)
2. The power of eminent domain –Private
property may be expropriated for public use
and upon payment of just compensation
and condemnation of private property is
justified only if it is for the public good and
there is genuine necessity therefor of a
public character
3. The power of taxation – Taxation is an
act of levying a tax. It is the process or
means by which the sovereign, through its
law making body, raises income to defray
the necessary expense of the government.
It is a method of apportioning the cost of the
government among those who in some
measure are privileged to enjoy its benefits
and must, therefore, bear its burden. (51
Am. Jur. 314).

Similarities of the three inherent powers Characteristics of Taxation

1. An attribute of sovereignty
2. The strongest of all inherent powers Principle of Sound Tax System
3. Practically absolute and unlimited 1. Fiscal Adequacy – Sources of the
4. Carries with it inherently the power to revenue of the government should be
embarrass and destroy sufficient to meet the demand of public
5. It is a legislative power expenditures regardless of business
condition.
Stages or Process of Taxation 2. Theoretical justice – Tax burden
1. Levy or Imposition – A legislative act must be proportionate to the taxpayer’s
whereby the Congress shall determine the ability the tax burden must be proportionate
subject or object of taxation (it may be to the taxpayer’s ability to pay.
person whether natural or juridical; property 3. Administrative Feasibility – Tax
whether real or personal; or rights), the laws must be capable of convenient, just
amount to be collected and how it is to be and effective administration. (Free from
implemented. (Impact of taxation) confusion and uncertainty).
2. Assessment – Administrative in
character. The determination of the correct Charcteristics of Taxes
amount of applicable tax. 1. An enforced contribution
3. Collection of tax – Administrative in 2. Proportionate in character
character. This involves the act of 3. Generally payable in money, although
administration and implementation of tax the law may allow the payment in other form
laws by the executive through its 4. Imposed on persons, property or exercise
administrative agencies such BIR and of right or privileges
Bureau of Customs. 5. Imposed by the State which has
jurisdiction over the object or subject of
Theories of Taxation taxation (Person, property or excise )
1. Lifeblood doctrine – Taxes are the 6. Levied for public purpose
lifeblood of the government, and their 7. Personal to the taxpayer
prompt and certain availability an imperious
need. (North Camarines Lumber Co. Inc. vs. Purpose of Taxation
Collector of Internal Revenue, G.R. No. L- 1. Revenue or fiscal or primary purpose
12353, September 30, 1960 citing Bull vs. 2. Other Purposes – is used to regulate
U.S. 295, U. S. 247). inflation, to achieve economic and social
2. Necessity Theory – The existence of stability, to serve as a key instrument for
the government is a necessity; that it cannot social control.
continue without means to pay its expenses; – The amount of taxes may be increased to
and that for those means, it has the right to curve the spending power, to protect local
compel all citizens and property within its industries against foreign competition and
limits to contribute. minimize inflation in times of prosperity. It
3. Benefits-Protection Theory – Under may be reduced to expand business,
this theory, for the benefit and protection encourage foreign trade and to ward off
received by the taxpayer from the depression in times of declining economic
government, the state has the right to conditions.
demand the payment of tax
– Taxes on imported goods may also be 2. Professional Tax
used as a bargaining tool by the 3. Business taxes, fees and charges
government. 4. Community Tax
– Taxes are impose to encourage [Link] on banks and other financial
economic growth by granting tax incentives, institutions
exemptions, relief to attract investments that
will increase employment. Toll – A sum of money for the use of
– Is used for the promotion of science, something, generally applied to the
invention or in financing educational consideration which is paid for the use
activities or use in improving the efficiency of road, highway, bridges or the like, of
a public nature. (Black law dictionary,
of the police forces in the maintenance of
6th edition
peace and order.

Classification of Taxes
1. As to subject matter
– Person (Personal, poll or capitation)
– Property
– Excise or privilege tax
2. As to one who bears the burden
– Direct tax Penalty – is a sum of money which the law
– Indirect tax exacts payment of by way of punishment for
3. As to purpose doing some act which is prohibited or for not
– General, fiscal or revenue doing some act which is required to be
– Special done. (Black law dictionary, 6th edition)
4. As to manner of computation
– Specific
– Ad Valorem
5. As to taxing authority
– National
– Local
6. As to rate
License fee - is a charge imposed by the
– Progressive tax
governmental body for the granting of a
– Regressive tax
privilege. (Pennsylvania Liqour Control
– Proportionate
Board vs. Publiker Commercial Alcohol C.,
347 Pa. 555, 32 A.2d 914, 917)
National Tax
1. Income tax
2. Estate tax
3. Donor’s tax
4. Value added tax
5. Other percentage tax
6. Excise tax
7. Documentary stamp tax
Local Tax
1. Real property tax
Three kinds of License OTHERS
• Imposts – in its broad sense, means any
[Link] for the regulation of useful tax or tribute imposed by authority, and
occupations or enterprises; applies as well to a tax on persons as a tax
[Link] for the regulation or restriction of on merchandise. (Nague, Tariff and custom
code 1st edition 2005). This indicates a
non-useful occupations or particular kind of tax levied by the
[Link] for revenue only. government on importation or exportation of
commodities in or out of the Philippines.
Special assessment – An assessment in • Assessment – It is the process by which
the nature of a tax levied upon property persons subject to taxation are listed, their
according to benefits conferred on the property described, and its value,
ascertained and stated. (Cooley, Taxation,
property. (Davies vs. City of Lawrence, 218
Vol 1 4th ed., p.78)
Kan. 551, 545 P.2d 1115, 1120) • Revenue – is a flow of wealth to the
government. These are income of the
government which includes all public
moneys which the state collects and
received from whatever source and in
whatever manner. Revenue cover the tax
collected.
• Subsidy – is a monetary aid directly
granted or given by the government to
individual or private commercial enterprises
Debt – is an obligation to pay or render in which the government desires to
services for a definite period of time based participate or which is considered proper
on a contract. subject of government aid because such
purpose is likely to be beneficial to the
public.

SOURCES OF PHILIPPINE TAX LAW

1. Constitution of the Philippines
2. Statutes – are laws enacted and
established by the will of the
legislative department of the government.
3. Executive orders- regulations issued by
the President or some administrative
Distinction of Tariff and Custom authority for the purpose of interpreting,
implementing or giving administrative effect
to a provision of the constitution.
4. Tax treaties and conventions with
foreign countries.
5. Revenue regulation promulgated by
the Department of Finance
6. BIR and Custom revenue
Memorandum
7. BIR Ruling
8. Judicial decisions
9. Local tax ordinances
Note: In case of conflict between the tax administration in relation to the provisions of
laws and GAAP the tax laws shall prevail. the Tax Code, relevant tax laws and other
However for the purpose of financial issuances for the guidance of the public.
statement presentation, GAAP prevail over 3. BIR Rulings are official position of the
tax law. Bureau to queries raised by taxpayers and
other stakeholders relative to clarification
TYPES OF ADMINISTRATIVE ISSUANCE and interpretation of tax laws.
[Link] Regulations (RRs) are
issuances signed by the Secretary of Requisites for lawful exercise of taxing
Finance, upon recommendation of the power
Commissioner of Internal Revenue, that 1. Public purpose
specify, prescribe or define rules and 2. Uniformity rule of taxation observed
regulations for the effective enforcement of 3. Either the person or property taxed is
the provisions of the National Internal within the jurisdiction of the government
Revenue Code (NIRC) and related statutes. levying the tax
2. Revenue Memorandum Orders 4. In the assessment and collection of
(RMOs) are issuances that provide certain kinds of taxes, notice and
directives or instructions; prescribe opportunity for hearing are provided. (Pepsi
guidelines; and outline processes, Cola Bottling Company vs. Municipality of
operations, activities, workflows, methods Tanauan, G.R. No. L-31156. February 27,
and procedures necessary in the 1976, citing Malcolm, Philippine
implementation of stated policies, goals, Constitutional Law, 513-14)
objectives, plans and programs of the
Bureau in all areas of operations, except INHERENT LIMITATION
auditing. 1. Limited to territorial jurisdiction of the
3. Revenue Memorandum Rulings taxing power or situs of taxation
(RMRs) are rulings, opinions and
interpretations of the Commissioner of Determination of situs of taxation:
Internal Revenue with respect to the [Link] matter
provisions of the Tax Code and other tax [Link] of tax
laws, as applied to a specific set of facts, [Link]
with or without established precedents, and [Link]
which the Commissioner may issue from
time to time for the purpose of providing Determination
taxpayers guidance on the tax of situs of taxation:
consequences in specific situations. BIR [Link] matter
Rulings, therefore, cannot contravene duly [Link] of tax
issued RMRs; otherwise, the Rulings are [Link]
null and void ab initio.
1. Revenue Memorandum Circular [Link] OF TAXATION
(RMCs) are issuances that publish pertinent
and applicable portions, as well as Real Property – Real property is normally
amplifications, of laws, rules, regulations determined by its geographical location but
and precedents issued by the BIR and other with the exception of intangible real property
agencies/offices. such as “Contracts for public works, and
2. Revenue Bulletins (RB) refer to servitudes and other real rights over
periodic issuances, notices and official immovable property”. (Article 415 (10) of the
announcements of the Commissioner of NCC)
Internal Revenue that consolidate the
Bureau of Internal Revenue's position on
certain specific issues of law or
Tangible Property [Link] tax situs – place where the
– Tangible personal property for estate tax business is conducted
purpose is determined of its geographical [Link] tax situs
location. ● Residence
● Citizenship
Intangible Property ● Where the income was earned.
Intangible personal property is generally 3. Income tax situs on sale of goods –
determined by the residence of the place of sale
decedent. However the following intangible [Link] Tax situs on sale or service -
properties are deemed situated within the services is rendered
Philippines. [Link] tax situs – where the property
–That franchise which must be exercised in is located
the Philippines ● Real property or tangible personal
–Shares, obligations or bonds issued by any property – Location
corporation or sociedad anonima organized ● Intangible personal property –
or constituted in the Philippines in Generally domicile of the owner
accordance with its laws unless the situs is acquire
–Shares, obligations or bonds by any elsewhere.
foreign corporation eighty-five percent [Link] tax situs – where the persons
(85%) of the business of which is located in place of residence.
the Philippines
– Shares, obligations or bonds issued by 2. Observance of International Comity
any foreign corporation if such shares,
obligations or bonds have acquired a •This is based on the principle of par in
business situs in the Philippines parem non habit imperium (equals do not
– Shares or rights in any partnership, have authority over one another).
business or industry established in the
•The observance of International comity is
Philippines, shall be considered as situated
in the Philippines. (Sec 104, RA. 8424) expressly recognize under Section 32, (B)
(7)(a) of the Tax Code by excluding the
Doctrine of Mobilia Sequuntur Personam income derived by foreign government from
(Movables follow the person) gross income as follows:
•Applicable when convenient “Income Derived by Foreign Governments. -
•Not applicable Income derived from investments in the
–Inconsistent with provision of the law
Philippines in loans, stocks, bonds or other
–Application would result in injustice
– When property has acquired an actual domestic securities, or from interest on
situs elsewhere. deposits in banks in the Philippines by (i)
•Tangible property foreign governments, (ii) financing
–Definite location + some degree of institutions owned, controlled, or enjoying
permanency refinancing from foreign governments, and
(iii) international or regional financial
Other Situs of Taxation
institutions established by foreign
governments.”
 [Link] of science (R.A. No. 5448)
[Link] and maintenance of roads,
bridges and piers.
[Link] for victims of calamity. (Luna vs.
Chippewa County, 34 LRA 131)
[Link] of the poor and unemployed
[Link] of pensions and bonuses for
service rendered by public employees

4.) Non delegablity of the taxing power

•Maxim: potestas delegata non delegari
potest which means “what has been
delegated, cannot be delegated.
•The general rule barring delegation of
legislative powers is subject to the following
recognized limitations or exceptions:
–Delegation of tariff powers to the President
under Section 28 (2) of Article VI of the
Constitution;
– Delegation of emergency powers to the
President under Section 23 (2) of Article VI
of the Constitution;
–Delegation to the people at large;
–Delegation to local governments; and
–Delegation to administrative bodies.
3. Test in Determining Public Purpose
•Test in determining Public Purpose Test of Valid Delegation
–Duty test [Link] test - is complete in itself,
•Whether the thing to be furthered by the setting forth therein the policy to be
appropriation of public revenue is something executed, carried out, or implemented by
which is the duty of the State, as a the delegate; (Pelaez vs. Auditor General,
government, to provide. No. L-23825, December 24, 1965) and
–Promotion of General Welfare test [Link] standard test — the limits of
•Whether the proceeds of the tax will which are sufficiently determinate and
directly promote the welfare of the determinable — to which the delegate must
community in equal measure. (1 Cooley conform in the performance of his functions.
384) (Pelaez vs. Auditor General, ibid, citing
Illustration of Public Purpose: People vs. Lim Ho, No. L-12091-2, January
[Link] eradication of a dreaded disease is a 28, 1960, 106 Phil. 887). A sufficient
public purpose (Benjamin Gomez vs. standard is one which defines legislative
EnricPalomar et al, G.R. No. L-23645. policy, marks its limits, maps out its
October 29, 1968) boundaries and specifies the public agency
[Link] educational activities and to apply it. It indicates the circumstances
programmes. (R. A. No. 5447) under which the legislative command is to
be effected. (Edu vs. Ericta, No. L-32096, enjoyment of religious profession and
October 24, 1970, 35 SCRA 481, 497) worship, without discrimination or
preference, shall forever be allowed. No
religious test shall be required for the
Can be delegated to administrative
exercise of civil or political rights. (Sec 5,
agency
Art. III, 1987 Constitution)
[Link] power to value property for purpose
[Link] law impairing the obligation of
of taxation pursuant to fixed rules
contracts shall be passed. (Sec 10, Art. III,
[Link] equalization of assessments by a
1987 Constitution)
central body
[Link] of taxes
[Link] power to perform any of the When due process is violated?
innumerable details computation, 1. Due process is usually violated
appraisement and adjustments and the where the tax imposed is for a private as
delegation of such details. distinguished from a public purpose;
2. A tax is imposed on property
5.)Recognized tax exemption of the
outside or beyond the jurisdiction of the
government entities
•Exemption from taxation of government State (i.e., extra-territorial taxation);
agencies and instrumentalities 3. Arbitrary or oppressive methods
–Agencies performing governmental are used in assessing and collecting taxes;
function 4. When the tax measure is so
•Tax exempt, unless expressly taxed. arbitrary amounting to confiscation of
–Agencies performing proprietary functions property;
•Subject to tax, unless expressly exempted.
5. In case of a retroactive statute
– Government Service Insurance System
(GSIS) which is so harsh and unreasonable. (Pepsi
– Social Security System (SSS) Cla Bottling Co., vs. Municipality of
– Philippine Health Insurance Corporation Tanauan, G.R. No. L-31156. February 27,
(PHIC) 1976)
– Philippine Charity Sweepstakes Office
(PCSO)* (now removed by R.A. 10963, What Constitute Equal protection of
TRAIN Law)
the law?
Constitutional Limitation • Equal protection of the law clause
General or indirect "does not demand absolute equality
[Link] person shall be deprived of life, liberty, amongst residents; it merely requires that all
or property without due process of law. (Sec persons shall be treated alike, under like
1, Art. III, 1987 Constitution) circumstances and conditions both as to
[Link] person shall be denied the equal privileges conferred and liabilities enforced";
protection of the laws.
(Sec 1, Art. III, 1987 Constitution)
[Link] law shall be passed abridging the Extent of Constitutional Guarantee
freedom of speech, of expression, or of the • The constitutional guaranty of the free
press, or the right of the people peaceably exercise and enjoyment of religious
to assemble and petition the Government profession and worship carries with it the
for redress of grievances. (Sec 4, Art. III, right to disseminate religious information.
1987 Constitution) Any restraint of such right can only be
[Link] law shall be made respecting an
justified like other restraints of freedom of
establishment of religion, or prohibiting the
free exercise thereof. The free exercise and expression on the grounds that there is a
clear and present danger of any substantive as it may impose, tariff rates, import and
evil which the State has the right to prevent. export quotas, tonnage and wharfage dues,
(American Bible Society vs. City of Manila and other duties or imposts within the
101 Phil framework of the national development
386 citing Tañada and Fernando on the program of the Government. (Art. VI, Sec
Constitution of the Philippines, Vol. I, 4th 28[2])
ed., p. 297) [Link] institutions, churches and
parsonages or covenants appurtenant
No law impairing the obligation of contracts thereto, mosques, non-profit cemeteries,
shall be and all lands, buildings, and improvements,
passed. (Sec 10, Art. III, 1987 Constitution) actually, directly, and exclusively used for
• Franchise not covered in the non religious, charitable, or educational
impairment clause purposes shall be exempt from taxation.
• A franchise partakes the nature of a (Art. VI, Sec 28[3])
grant which is beyond the purview of the
non-impairment clause of the Constitution. The rule of taxation shall be uniform and
• Article XII, Section 11, of the 1987 equitable.
Constitution is explicit that no franchise for The Congress shall evolve a progressive
the operation of a public utility shall be system of taxation. (Art. VI, Sec 28[1])
granted except under the condition that •Uniformity defined:
such privilege shall be subject to – Uniformity, as applied to the constitutional
amendment, alteration or repeal by provision that all taxes shall be uniform,
Congress as and when the common good means that all property belonging to the
so requires. same class shall be taxed alike. (Adams vs.
Mississippi State Bank, 23 South, 395,
Constitutional Limitation citing Mississippi Mills vs. Cook, 56 Miss.,
Specific or direct 40.)
1. No person shall be imprisoned •Equity in Taxation
for debt or non-payment of a poll tax. (Art III, –Equity in taxation means fair, just,
Sec 20) reasonable and
2. All appropriation, revenue or proportionate to one’s ability to pay.
tariff bills, bills authorizing increase of public •Progressive defined
debt, bills of local application, and private – Taxation is progressive when its rate goes
bills shall originate exclusively in the House up depending on the resources of the
of Representatives, but the Senate may person affected. (Reyes vs. Almanzor, G.R.
propose or concur with amendments. (Art. Nos. 49839-46, April 26, 1991, 196 SCRA
VI, Sec 24) 322, 327).
3. The rule of taxation shall be
uniform and equitable. The Congress shall Requisites of Reasonable
evolve a progressive system of taxation. classification
(Art. VI, Sec 28[1]) [Link] standards that are used therefor are
[Link] Congress may, by law, authorize the substantial and not arbitrary;
President to fix within specified limits, and [Link] categorization is germane to achieve
subject to such limitations and restrictions the legislative purpose;
[Link] law applies, all things being equal, to educational purposes shall be exempt from
both present and future conditions, taxes and duties. Upon the dissolution or
[Link] classification applies equally well to
cessation of the corporate existence of such
all those belonging to the same class (Pepsi
institutions, their assets shall be disposed of
Cola vs. City of Butuan, 24 SCRA 3; Basco
vs. PAGCOR, 197 SCRA 771) in the manner provided by law. (Art XIV,
5. No law granting any tax exemption shall Sec 4[3])
be passed without the concurrence of a [Link] educational institutions,
majority of all the Members of the Congress. including those cooperatively owned, may
(Art. VI, Sec 28[4]) likewise be entitled to such exemptions
6. The Congress shall have the power to subject to the limitations provided by law
define, prescribe, and apportion the including restrictions on dividends and
jurisdiction of various courts but may not provisions for reinvestment. (Art XIV, Sec
deprive the Supreme Court of its jurisdiction 4[3] par 2)
in All cases involving the legality of any tax, [Link] to conditions prescribed by law,
impost, assessment, or toll, or any penalty all grants, endowments, donations, or
imposed in relation thereto. (Sec. 2, Art. VIII contributions used actually, directly, and
in relation to Sec. 5[2], Art VIII , 1987 exclusively for educational purposes shall
Constitution) be exempt from tax. (Art XIV, Sec 4[4])
7. No public money or property shall ever be
appropriated, applied, paid or employed, Two Kinds of Double Taxation
directly or indirectly for the use, benefit or [Link] (strict sense)
support of any sect, church, denomination, –May be unconstitutional
sectarian institution, or system of religion, or –Violates uniformity rule or the equal
any priest, preacher, minister or other protection guarantee
religious teacher, minister, or dignitary, is
assigned to armed forces, or any penal [Link] (broad sense)
institution, or government orphanage or –Follows constitutional rule on uniformity,
leprosarium except when the priest, there is no valid objection to taxing the
preacher, minister, or dignitary is assigned same income, business or property twice
to the armed forces or to any penal
institution, or government orphanage or Double Taxation in Strict Sense
leprosarium. (Sec. 29 (2), Art VI) Double taxation means taxing a person,
property or rights
a. Twice;
[Link] revenues and assets of non-stock, [Link] the same taxable year;
non-profit educational institutions used [Link] the same taxing authority;
actually, directly, and exclusively for [Link] the same jurisdiction; and
[Link] the same purpose Ways of Shifting Tax Burden
[Link] shifting
No Double Taxation –Manufacturer => Retailer => Consumer
•By taxing corporate income and [Link] shifting
stockholders’ dividends from the same –Consumer => Retailer => Manufacturer
corporation [Link] shifting
•Tax imposed by the State and the local –Shifting two or more times either forward
government upon the same occupation, or backward
calling or activity Impact vs. Incidence of Taxation
•Real estate tax and income tax collected [Link]
on the same real estate property leased for –Point of original imposition of tax (or the
earning purposes one on whom the tax is formally assessed)
[Link]
How to Avoid Double Taxation
–Point on which the tax burden finally rests
[Link] reciprocal exemption either by
Example:
law or by treaty
VAT is originally assessed against the seller
[Link] of tax credit for foreign taxes
who is required to pay the said tax, but the
paid
burden is actually shifted or passed on to
[Link] of deductions such as for
the buyer
foreign taxes paid, and vanishing
deductions in estate tax Transformation
[Link] of Philippine tax rate •A manufacturer absorbs the burden of tax
to maintain the market share and to recover
Escape from Taxation
such tax expense by improving the process
[Link] of tax burden
of production.
[Link]
[Link] avoidance (tax minimization)
[Link] evasion (tax dodging)

Shifting of Tax Burden Tax administration

•Refers to the management of the tax
•Transfer of burden (not payment) of tax system
from the statutory taxpayer to another
without violating the law Interpretation and Construction of tax
statutes

•All indirect taxes (VAT, percentage tax) •Tax imposition – Against the government
•Tax exemption – Strictly against the
may be shifted; direct taxes cannot be
taxpayer
shifted •Tax deduction – Strictly against the
taxpayer
 –Customs Commissioner

Tax Amnesty
•Waiver of the Government of its right to
collect taxes
• Never favored nor presumed in law
• Construed strictly against the taxpayer
Sources of Revenue - NIRC
[Link] tax Tax Exemption and Exclusion
[Link] and donor's taxes • Never favored nor presumed in law
[Link]-added tax • Construed strictly against the taxpayer
[Link] percentage taxes
[Link] taxes
[Link] stamp taxes Module 2: Income Tax: Basic Concepts
[Link] other taxes collected by the BIR
Definition of Income Tax- Tax on all yearly
Power of the Commissioner to Interpret profits arising from property, professions,
Tax Laws and to Decide Tax Cases trades, or offices, or as a tax on a person's
income, emoluments, profits and the like
•The power to interpret the provisions of this
Code and other tax laws shall be under the Direct tax - cannot be shifted to another
exclusive and original jurisdiction of the taxpayer
Commissioner, subject to review by the Excise tax - levied upon the right of a
Secretary of Finance. person to receive income or profits
•The power to decide disputed
assessments, refunds of internal revenue
taxes, fees or other charges, penalties
imposed in relation thereto, or other matters
arising under this Code or other laws or
portions thereof administered by the Bureau
of Internal Revenue is vested in the
Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax
Appeals. When is income taxable?
- There is income, gain or profit (and not
Compensation and Set-off
•Taxes are not subject to set-off or legal return of capital)
compensation -Received, accrued or realized during the
•The government and the taxpayer are not year
mutual creditor and debtor of each other - Not exempt from income tax
•The Doctrine of Equitable Recoupment
finds no application in the Philippines

Compromise
•Making reciprocal concessions avoid
litigation or put an end to one already
commenced
•Reduction of the taxpayer’s liability
•Persons allowed: Income Earned Tests
–BIR Commissioner [Link] principle
–Collector of Customs
[Link]-of-claim doctrine (or doctrine of
ownership, command, or control)
[Link] benefit theory (doctrine of
proprietary interest)
[Link] test theory
[Link] from whatever source
[Link] events test

Realization Principle
1. The earning is complete or virtually
complete Features of Philippine Income Tax Law
2. An exchange has taken place * Direct tax
-Advances received are not treated as * Progressive tax - based on ability to pay
revenue principle
- Stock dividends are not income * Comprehensive system
* Semi-schedular or semi-global tax system
Constructive Receipt: Examples * National tax
1. Deposit in banks without restrictions * Excise tax
2. Notice of debtor to offset a debt and
accepted by the seller as payment Criteria in Imposing Income Tax
3. Transfer of amounts retained by the * Citizenship principle
payor to the account of the contractor * Residence principle
4. Interest credited on savings bank deposit * Source Principle
5. Matured interest coupons not yet
collected Types of Philippine Income Tax
6. Dividends applied against the debt of a * Graduated income tax on individuals
stockholder * Regular corporate income tax
7. Undistributed share in profit of a partner * Minimum corporate income tax
in a GPP * Preferential rates (for special
8. Intended payment deposited in court corporations)
(consignation) * Gross income tax
* Capital gains tax
* Final income tax
* Fringe benefits tax
* Branch profit remittance tax

Kinds of Taxpayers
Taxpayer- Any person subject to tax
imposed by Title II of the Tax Code
Person- Means an individual, a trust, estate
or corporation
1. Individuals
2. Partnerships
3. Corporations
4. Estates and Trusts