Tax I Syllabus SY 2009 - 2010

Ateneo College of Law

Atty. Marissa O. Cabreros

NOTE:
RA 9504 amended Secs. 22, 24, 34, 35, 51 & 79 of the Tax Code
RR 10-2008 Implements certain provisions of RA No. 9504 entitled "An
Act Amending Sections 22, 24, 34, 35, 51 and 79 of RA No. 8424, as
Amended, Otherwise Known as the National Internal Revenue Code"
relative to the withholding of Income Tax on compensation and other
concerns (published in Philippine Star on September 25, 2008)

Part II INCOME TAXATION

Chapter I General Principles
I.

Features of Philippine Income Taxation

A. Tax Situs
a. Nationality
b. Residence
c. Source
B. Progressive vs. Regressive System of Taxation
C. Global vs. Schedular System of Taxation

II.
III.

General Principles of Income Taxation S23

Scope of Income Taxation
A. Definition of Terms S22
B. Taxpayer S22(N)
C. Persons S22(A)
D. Persons liable to tax CIR vs. Procter & Gamble 204 SCRA 378

Chapter II Income
I.

Income
a. Definition
b. Difference between Capital & Income
i. Madrigal v. Rafferty 38 Phil 14
c. Difference between Receipts & Income
d. Requisites for Income to be Taxable
e. Test in determining income / Doctrines on Determination of Taxable
income
i. Realization Test / Severance Theory
1. Eisner v. Macomber 252 US 89
2. Raytheon Production Corp vs. CIR 144 F2d 110
3. BIR Ruling 091-99 dated July 8, 1999
ii. Claim of right doctrine
1. Commissioner v. Tours Specialist 183 SCRA 402
2. Commissioner vs. Javier 199 SCRA 824
iii. Income from whatever source
1. Sec 50 Regulations No. 2

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2. Guitterez vs. Collector 101 Phil 713

3. James v. US 366 US 213
4. Commissioner v. Glenshaw Glass 348 US 426
5. Farmers & Merchants Bank v. CIR 59 F2nd 912
iv. Economic benefit test
1. BIR Ruling No. 123-97 dated November 10, 1997
2. BIR Ruling No. 029-98 dated March 19, 1998
3. Perry v. US 160 F Supp 270
4. Bradford vs. CIR 233 F2d 935
Chapter III Classification of Income Taxpayers
I.

Individuals
a. Citizens S1 S2, Art IV 1987 Constitution
i. Resident Citizens
ii. Non-Resident Citizens S22(E)
b. Alien
i. Resident Alien
S22(F)
Sec 5 last par, Revenue Regulations No. 2
ii. Non-resident Alien S22(G)
1. engaged in trade or business
2. not engaged in trade or business
c. General Professional Partnership S22(B)
i. Tan vs. CIR GR L-109289 October 3, 1994

II.

Estates & Trusts

a. Definition of an Estate & Trusts
b. CIR v Visayas Electric 23 SCRA 715
c. CIR v. CA, CTA, GCL Retirement Plan 207 SCRA 487

III.

Corporations S22(B)
a. Domestic Corporation S22(C)
i. Co-ownership Art. 484 Civil Code
b. Foreign Corporation S22(D)
i. Resident Foreign Corporation S22(H)
ii. Non-Resident Corporation S22(I)
c. Cases
i. Lorenzo Oa v. CIR 45 SCRA 74
ii. Evangelista vs. Coll 102 Phil 140
iii. Pascual v. CIR 166 SCRA 560
iv. Afisco Insurance Corp vs. CIR GR 112675 Jan 25, 1999 302
SCRA 1

Chapter IV Tax Base & Tax Rates

A. Individuals
I.

Resident Citizens & Resident Aliens S24

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II.

III.

Atty. Marissa O. Cabreros

a. Taxable Income S24(A)(1)(a), (b) & (c)

b. Passive Income
i. Interest, Royalties, Prizes & Other Winnings
1. S24(B)(1)
2. S22(FF)
3. RR 10-98
ii. Dividends S24(B)(2)
iii. Capital gains on shares of stocks
1. S24(C)
2. RR 06-2008
iv. Capital gains on real property
1. S24(D)
2. Civil Code definition of Real Property [Art 415 of
the Civil Code]
3. RR 8-98
4. RR 13-99
5. RR 14-2000
Non-Resident Aliens S25
a. Engaged in trade or business
i. Taxable Income S25(A)(1)
ii. Passive Income S25(A)(2)
iii. Capital gains S25(3)
b. Not engaged in trade or business S25(B)
c. Special Aliens S25(C), (D) & (E)
i. RMC 41-2009
Members of General Professional Partnership S26

B. Corporations
I. Domestic Corporations S27
a. In general S27(A)
b. Special Corporations S27(B), (C)
c. Passive Income
i. Interest, Royalties S27(D)(1) & (3)
ii. Dividends S27(4)
iii. Capital gains S27(D)(2) & (5)
II. Resident Foreign Corporations S28
d. In general S28(A)
i. N.V. Reederit Armsterdam v. Commissioner GR 46029
June 23, 1988 162 SCRA 487
e. Special Foreign Corporations
i. International Carriers
1. S28(3)
2. RR 15-2002
ii. Offshore Banking Units
1. S28(4) as amended
2. RR 10-98
3. RR 10-76
4. RR 14-77

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iii. Regional or Area Headquarters and Regional Operating

Headquarters
1. S22(DD)
2. S22(EE)
3. S28(A)(6)
f. Branch Profit Remittance Tax S28(A)(5)
i. Marubeni Corp v. Commissioner 177 SCRA 500
ii. Bank of America NT & SA vs. CA & CIR 234 SCRA 302
iii. Compania General de Tabacos CTA 4451 Aug 23, 1993
iv. RMC 55-80
g. Passive income
i. Interest S28(A)(7)(a) & (b)
ii. Dividends S28(A)(7)(d)
iii. Capital gains S28(A)(7)(c)
h. Subsidiary vs. Branch of a Foreign Corporation
i. Refer: Mamalateo: Philippine Income Tax (pages 57 - 62)
III. Nonresident Foreign Corporation
i. In general S28(B)(1)
j. Special Non-Resident Foreign Corporations S28(B)(2), (3) & (4)
k. Passive Income
i. Interest S28(B)(5)(a)
ii. Dividends S28(B)(5)(b)
1. Commissioner v. Procter & Gamble PMC 160 SCRA
560, 204 SCRA 377
2. Commissioner v. Wander Phils. 160 SCRA 573
3. Marubeni Corp v. Commissioner 177 SCRA 500
iii. Capital gains S28(B)(5)(c)
IV. Minimum Corporate Income Tax (MCIT)
l. On Domestic Corporation S27(E)
m. On Resident Foreign Corporation S28(A)(2)
n. RR 9-98
o. RMC 4-2003
p. RR 12-2007
V. Improperly Accumulated Earnings Tax
q. S29
r. RR 2-2001
s. Manila Wine Merchants, Inc. v. CIR 127 SCRA 483
t. CIR vs. Tuason, Jr. 173 SCRA 397
u. Cyanamid vs. CA 322 SCRA 639
VI. Exemption from Tax on Corporation
b. S30
v. Sec 24, Regulations No. 2
w. Secs 25 32, Sec 35 Regulations No. 2
Chapter V Income

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Atty. Marissa O. Cabreros

I.

Taxable Income
f. S31
g. Sec 36 38, Regulations No. 2

II.

Gross Income
h. General Definition S32(A)
i. Compensation
1. S32(A)(1)
2. Sec 2.78.1 (A) RR 2-98 as amended by Secs 1 and 2, of
RR 10-2008
3. Fringe Benefits
a. S33
b. Sec 2.33 RR 3-98 as amended by RR 10-2000
and further amended by RR 05-2008
c. Collector v. Henderson 1 SCRA 649
d. CIR vs. Efren P. Castaneda GR 96016 Oct 17,
1991 203 SCRA 72
ii. Income from business or exercise of profession
1. Secs. 43 47, Regulations No. 2
iii. Rents
iv. Gains derived from dealings in property
1. Ordinary Gains & Losses
a. Ordinary Income S22(Z)
b. Ordinary Loss S22(Z)
2. Capital Gains & Losses
- Capital gains on Stocks
- Capital gains on Real Property
- Capital gains on other Capital Assets
b. Capital Assets S39(A)(1)
c. Net Capital Gain S39(A)(2)
d. Net Capital Loss S39(A)(3)
e. Holding Period S39(B)
f. Limitation on Capital Losses S39(C)
g. Net Capital Loss Carry Over S39(D)
3. Real Property: Ordinary vs. Capital Assets
a. RR 07-2003
4. Recognition of Gains & Losses
a. S40
b. RR 18-2001
v. Interest
vi. Royalties
vii. Dividends
1. S73
2. CIR v. CA, CTA, & ANSCOR GR 108576 Jan 30,
1999
3. Eisner v. Macomber 252 US 89
viii. Annuities
ix. Prizes and winnings
x. Pensions
xi. Partners distributive share in a general professional partnership

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1. S26
xii. Income from whatever sources
III.

Exclusions from Gross Income

1. S32(B)
2. Sec 2.78.1 (B) RR 2-98
3. De minimis benefits
a. RR 10-2008
4. CIR v. CA & Castaneda GR 96016 Oct 17, 1991 203
SCRA 72
5. BIR Ruling 219-93 dated May 17, 1993

IV.

Income from Sources within and without the Philippines S42

i. Income from sources within the Philippines S42(A), (B)
j. Income from sources without the Philippines S42(C), (D)
k. Income from sources partly within and without the Philippines S42(E)

Chapter VI Deductions
I.

Ordinary and Necessary Trade, Business or Professional Expenses

a. In general
i. S34(A)(1)(a)
ii. RR 10-2002
b. Ordinary and Necessary Expenses
Test of Deductibility
i. ESSO v. CIR 175 SCRA 149
ii. Zamora v. Collector 8 SCRA 163
c. Test of Reasonableness
i. CM Hoskins & Co., Inc. v. Commissioner 30 SCRA 434
d. Substantiation Requirement
i. S34(A)(1)(b)
ii. S34(K)
e. Other Cases:
i. CIR vs. CTA & Smith Kline & French Overseas Co (Phil
Branch) 127 SCRA 9 L-54108 January 17, 1984
ii. Gancayco vs. The Collector 1 SCRA 980 L-13325 dated
April 20, 1961

II.

Interest
a. S34(B)
b. S36(B)
c. RR 13-2000
d. RMC 31-2009
e. Cases:
i. Old Colony R. Co. v. CIR 284 US 552
ii. Palanca v. CIR 18 SCRA 496
iii. Paper Industries Corp. v. CA, CIR & CTA 250 SCRA 434
iv. Collector vs. Prieto 109 Phil 592

III.

Taxes

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a.
b.
c.
d.
e.

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S34(C)
Allowable deduction
Allowable tax credit
CIR v.Lednicky GR L-18169 July 31, 1964
Guittierez v. Collector 14 SCRA 33

IV.

Losses
a. Ordinary Losses
i. S34(D)
ii. RR 12-77
iii. RMO 31-2009
b. Net Operating Loss Carry Over (NOLCO)
i. S34(D)(3)
ii. RR 14-2001
c. Other Types of Losses
i. Capital Losses S34(D)(4)
ii. Losses from Wash Sales
1. S34(D)(5)
2. S38
iii. Wagering Losses
1. S34(D)(6)
2. S38
iv. Abandonment Losses S34(D)(7)
d. Cases
i. Plaridel Surety & Ins Co v. CIR 21 SCRA 1187
ii. Fernandez Hermanos Inc. v. CIR 29 SCRA 553
iii. China Bank Corp vs. CA, CIR, CTA 336 SCRA 178

V.

Bad Debts
a. S34(E)
b. RR 5-99
c. RR 25-2002
d. Collector v. Goodrich International Rubber Co. 21 SCRA 1336
e. Fernandez Hermanos Inc. v. CIR 29 SCRA 553

VI.

Depreciation
a. S34(F)
b. Methods of Depreciation
i. Straight Line Method
ii. Declining Balance Method
iii. Sum of the Years Digit Method
c. Special Rules on Depreciation
i. Private Educational Institutions S34(A)(2)
ii. Petroleum Operations S34(F)(4)
iii. Mining Operations S34(F)(5)
iv. For Nonresident Aliens Engaged in Trade or Business or
Resident Foreign Corporation S34(F)(6)
d. Cases:
i. Basilan Estate, Inc. v. Commissioner 21 SCRA 17
ii. US v. Ludley 247 US 295
iii. Zamora v. Collector 8 SCRA 163

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iv. Fernandez Hermanos Inc. v. CIR 29 SCRA 553

VII.

Depletion
a. S34(G)
b. US v. Ludley 247 US 295

VIII.

Charitable & other Contributions

a. Subject to Limitation S34(H)(1)
b. Deductible in Full S34(H)(2)
c. RR 13-98
d. RMC 14-2008
e. RMC 88-2007
f. Roxas v. CTA 23 SCRA 276

IX.

Research & Development S34(I)

X.

Pension Trust S34(J)

XI.

Optional Standard Deduction S34(L)

a. RA 9504
b. RR 16-2008

XII.

Premium Payments on Health/Hospitalization Insurance S34(M)

XIII.

Allowance for Personal & Additional Exemption

a. RR 10-2008
b. Personal Exemption
i. S35(A)
c. Additional Exemption
i. S35(B)
ii. Definition of Dependent
d. Change of Status S35(C)
e. Personal Exemption Allowable to Nonresident Alien Individual
S35(D)
f. Estates and Trusts S62
g. Cases:
i. Madrigal v. Rafferty 39 Phil 414

XIV. Items not Deductible

a. Bribes, Kickbacks S34(A)(1)(c)
b. S36
c. Gancayco v. Collector 1 SCRA 980
Chapter VII - Partnership
I.
Taxation of General Partnership
II.
Taxation of General Professional Partnership
Chapter VIII Estate & Trust
I.
Chapter X Title II of the Tax Code [S60-66]

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Atty. Marissa O. Cabreros

Chapter IX Accounting Periods and Methods of Accounting

I.
Chapter VIII Title II of the Tax Code [S43 to S50]
II.
Accounting Periods
a. Taxable year S22(P)
b. Calendar year
c. Fiscal year S22(Q)
III.

Accounting Methods
a. Cash Basis
b. Accrual Basis
Filipinas Synthetic Fiber Corp vs. CA 316 SCRA 480
c. Long-term Contracts
i. S48
ii. Sec 44, Regulations No. 2
d. Installment Basis
i. S49
ii. Sec 51, Regulations No. 2

Chapter X Returns and Payment of Tax

I.
II.

III.

IV.
V.

Chapter IX Title II of Tax Code [S51 to S59]

Individuals
a. S51
b. S56
c. S74
d. Substituted Filing - Sec 2.83.4 of RR 2-98 as amended by Sec 4 of
RR 03-2002 and further amended by Sec 6 RR 10-2008
Corporations
a. S52
b. S56
c. S75-77
Estates and Trusts S65
General Professional Partnerships S55

Chapter XI Withholding Taxes

I.
II.
III.

Withholding on Wages S78-83

a. Sec 2.79 of RR 2-98 as amended, and amended further by Sec 3
and 4 of RR 10-2008
Withholding Tax on Source
x. Final Withholding Taxes S57(A)
y. Creditable Withholding Taxes or Expanded Withholding Tax S57(B)
Returns & Payments S58