TAX 1 PONTS TO REMEMBER:

 Passive income earned by non-stock, non-profit educational institutions are either subject or not
subject to tax. No definite SC decision yet. It may be answered either way.
 Partnership follow the constructive receipt doctrine wherein the income is deemed automatically
distributed to the partners even if there be no actual distribution. It is taxed at 0-35% and the situs
is where the profession is taken.
 Constructive Receipt Doctrine: the income is deemed received even if there is no actual distribution
or receipt of the income. For GPP, the partnership income is deemed distributed to the partners
automatically. Even if not declared, the share of the partner in the partnership income goes to the
partner.
 There is a net capital loss carry-over on the net capital asset’s loss in a taxable year; provided that
the following conditions shall be observed: 1.) the taxpayer is other than a corporation 2.) The
amount of loss does not exceed the income before exemptions at the year when the loss was
sustained 3.) the holding period should not exceed twelve months
 Passive income sourced outside the Philippines will be included as gross income subject to 0-35%.
This rule is applicable only to resident citizens or domestic corporations because they are taxable
on income derived from sources within and without the Philippines.
 If what are distributed are its own shares, then it is stick dividends. If what are distributed are shares
of another corporation, then it is property dividends.
 Share in trade partnership is taxed the same way as dividends. This is different from a GPP. They
are not subject to passive income tax (they follow constructive receipt doctrine: even when you
declare or not, you are taxed), and they are subject to 0-35%.
 The treasury share is the property of the corporation already. When the corporation would like to
sell its treasury share, it will be treated as a property dividend subject to 10% or 20% or 25% as the
case may be.
 Tax Sparring Rule: RFC are subject only to a tax rate of 15% instead of the usual 30%, subject to
the rule on reciprocity. To make it equal with the branch profit remittance of 15%.
 Long-Term Deposit or Investments: if the holding period is at least 5 years, it is not anymore subject
to tax. This is applicable only to Philippine currency deposits or investments.
 Rule if stocks are traded outside the Philippines (not local): if the stocks are traded outside the
Philippines, it is included in the gross income subject to 0-35% computation. If a domestic
corporation’s stock is sold not through the local stock exchange, it will be included as gross income
subject to 0-35% computation.
 If the shares of stocks are listed and traded in the local stock exchange, it will be subject to a stock
transaction tax (OTT) at a rate of 60% of 1% of the gross selling price. The two must go together
for it to be subject to the stock transaction tax. It has to be listed and at the same time traded.
 EXCLUSIONS: Amount Received as Return of Premium- what is taxable is the excess of the
amount received over the amount paid. The excess forms part of the 0-35% computation. The
interest payment is also taxable.
 EXCLUSIONS: Compensation for injuries or sickness- exceptions: actual damages for loss of
anticipated profits, moral and exemplary damages awarded as a result of breach of contract, interest
for non-taxable damages above and damages for compensation for unrealized income.
 EXCLUSIONS: Income exempt under treaty- Most favoured nation clause which is one way of
preventing or avoiding international double taxation. It is an exclusion because both sovereign
states, being superior in their own right, entered into an agreement. We follow the pacta sunt
servanda that we have to be in good faith whenever we deal with international personalities. So if

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 we agreed that no taxes will be paid so it is appropriate to exclude them from taxes. This also
embodies the principle of reciprocity and comity.
 EXCLUSIONS: Retirement Benefits, Pensions, Gratuities- GR: everything for which you paid a
contribution, if there are benefits from them, it is always exempted.
 Optional Standard Deduction (OSD) in lieu of itemized deductions, the taxpayer may elect an
optional standard deduction of 40%. If a taxpayer elects to offset his losses against his profit from
capital asset transactions, he may no longer claim OSD since OSD is in lieu of the itemized
deductions which include losses from sales or exchanges of capital assets.
 If the individual employs the accrual basis of accounting for his income and deductions, the OSD
shall be based on the gross sales during the taxable year. If he employs cash basis, the OSD shall
be based on his gross receipts during the year.
 Taxable estate and trust can claim 40% OSD. Estates and Trusts are taxed like individuals.
 GR: a trust once created can be considered a separate taxpayer. EXC: consolidation of trusts when
the trusts are created by the same person for the same beneficiary.
 Employee’s Trust: If you use the principal or its profit for other purposes than for pension or profit
sharing plan of employee, it becomes subjected to tax, whatever income earned.
 Trust is taxable if it is irrevocable trust. You include the distribution for purposes of determining
GROSS income but deduct it for purposes of taxation. What is being taxed is the amount less the
distribution.

 Rev. Reg. 8-2018 Take note of Rev Reg No. 8-2018. If the taxpayer avails of the 8% income tax
rate, no deduction of 250,000 for the mixed income earner. The option of 8% income tax rate is
applicable only to taxpayer‘s income from business, and the same is in lieu of the income tax under
the graduated income tax rates and the percentage tax. The amount of P250,000 allowed as
deduction under the law for taxpayers earning solely from self-employment or practice of
professions, is not applicable for mixed income earner under the 8% income tax rate option. The
P250,000 is already incorporated in the first tier of the graduated income tax rates applicable to
compensation income.
 A fringe benefit only happens when you are given an amount without you having to liquidate it.
 The housing privilege given to rank-and-file employees is not a fringe benefit but form part of
compensation income.
 SUBJECT TO OTHER TAXES (RR 5-98) The exemption of any fringe benefit from the fringe
benefit tax shall not be interpreted to mean exemption from any other income tax imposed under
the Code except if the same is likewise expressly exempted from any other existing law. Thus, if
the fringe benefit is exempted from the fringe benefit tax, the same may still form part of the
employee‘s gross compensation income subject to income tax. Hence, it is likewise subject to
withholding tax on compensation income payment.
 If Philippine currency deposits – 20%
If foreign currency deposits – 15%
Non-banking institutions – 0-35%

 Kinds of Royalty Income

1. Active Royalty Income – 0-35% for individuals or 30% for corporations
2. Passive Royalty income – 20% final tax
Royalties on books as well as other literary works and musical composition – 10% final tax

 CASH/PROPERTY DIVIDENDS
To individuals from domestic corporations
Dividends shall be subject to a final withholding tax of

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 10% - RC, NRC, and RA (Resident Citizens, Non-resident citizens and Resident
Aliens)
20% - NRA – ETB (Non-resident alien engaged in trade or business in the
Philippines) 25% - NRA –NETB (Non-resident alien not engaged in trade or business in
the Philippines)
 Summary:
60% of 1% – listed and traded within the Philippines
15% CGT – not listed or not traded in the local stock market
0-35% – if it involves a domestic corporation or a foreign stock exchange
 SUMMARY
1. NRA-ETB
a. More than 180 days
b. 0-35% tax on net income
2. NRA-NETB
a. 180 days or less
b. 25% final tax on gross income
 SUMMARY
1. Alien – 15% of gross compensation income
2. Filipino – either
a. 15% FT on gross compensation income; or
b. 0%-35% on net taxable compensation income
i. If gross annual taxable compensation is at least P975,000
 TAX RATES OF INDIVIDUALS
1. RC – 0-35% of net income within & without
2. NRC – 0-35% on net income within
3. RA – 0-35% of net income within
4. NRA-ETB – 0-35% of net income within
5. NRA-NETB – 25% of gross income within
6. Estates & Trusts – 0-35% of net income
7. Special Employees – 15% of gross compensation income
 SUMMARY
Taxable fringe benefit
1. Can be used for personal purposes
2. No restrictions on its use

Instances include:
1. Given transportation allowance but not required to liquidate
2. Free to use the motor vehicle after office hours

Not taxable fringe benefit if

1. For the convenience of the employer
2. Used in trade or business of employer

Instances include:
1. Motor vehicle not exclusively used by an employee but used also by other employees
2. Fleet of vehicle for marketing or sales department
3. Given transportation allowance and required to liquidate
4. Use company car/vehicle strictly for business purposes

SUMMARY

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Passive income earned outside the Philippines – 0-35%

Passive income earned within the Philippines – 20%, except:

1. Royalties on books, literary & musical compositions – 10%
2. Prizes & winnings (P10,000 or less) – 0-35%
3. PCSO & lotto winnings (P10,000 or less) – exempt
4. Interest income from FCDU – 15%
5. Cash & Property dividends
a. To RC, NRC, RA from DC – 10%
b. To NRA-ETB from DC – 20%
c. To NRA-NETB from DC – 25%
d. To DC from DC – 0%
e. To individuals from RFC – 0-35%

- Apply the tax situs rule:

i. Income within if ratio is more than 85%
ii. Income without if ratio is less than 50%
iii. Partly income within & income without if ratio is between 50% and 85%

Capital Gains transactions:

1. CG from Sales of Shares of Stocks
a. Must not be listed or traded in the local stock exchange.
b. Rate: 15% based on Net Gain: GSP – Cost
c. If listed and traded in the stock exchange:
i. 60% of 1% based on Gross Selling Price.

2. CG from Sale of Real property

a. Rate: 6% based on either:
i. Sec. 24 (D): Gross Selling Price
ii. Sec. 6 (E)(1): FMV as determined by Commissioner of BIR
iii. Sec. 6 (E)(2): FMV as determined by Prov. or City Assessors
TN: Whichever is higher

3. CG from Sale of Other properties

a. Rate: 0-35% based on
b. Things to remember: Ordinary gains and capital gains can be added. Ordinary loss and capital
gains can be joined. But capital loss cannot be deducted from ordinary gains.
c. Sec. 39 (B): Percentage taken into account
i. Held for not more than 12 months: 100%
ii. Held for more than 12 months: 50%
d. Sec. 39 (D): In case of Capital Loses, the amount of Net Capital Loss Carry-Over cannot
exceed ordinary gains.
i. Can only be carried over for a period of 1 year.

TAX ON NRA-NETB
SUMMARY
GR: 25% of gross income
EXC: 15% of salaries within

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1. Alien employed in RAHQ
2. OBUs
3. Petroleum service contractor and subcontractor

SUMMARY
A. Individuals not required to file ITR:
GR: All individuals are required to file an ITR. (RC, NRC, RA, NRA-ETB)
EXC: NRA-NETB
REASON: Income of NRA-NETB is subject to final withholding tax of 25% withheld at
source.

B. Individuals not required to file ITR:

Taxable income does not exceed P250,000
o EXC: Business or professional income, regardless of amount of gross income
Pure compensation income earner
o EXC: 2 or more employers any time during the taxable year
Sole income subjected to final withholding tax
Minimum wage earner or tax-exempt individual

WHEN TO FILE
1. Individual
a. On or before May 15 starting 2019
b. On or before April 15 until 2018
2. Corporation
a. On the 15th day of the 4th month
3. Capital Gains
a. Sale or exchange of shares of stock not traded thru a local stock exchange
i. Within 30 days after each transaction
ii. Final consolidated return on or before April 15
b. Sale or disposition of real property
i. Within 30 days following each sale or other disposition
4. Taxes withheld at source
a. Not later than the last day of the month following the close of the quarter

Passive Incomes:
Interest Income from bank deposits or other financial institutions- final witholding tax of 20%
Interest Income from non-banks: interest income out of a loan transaction is not a passive income.
thus, it shall be subject to a final tax but subject to the normal tax rate of 0-35%.
Foreign Currency Deposit Units (FCDU): 15% final tax; only applicable to residents. Residence is
the basis and not citizenship.
Active Royalty Income- 0-35% for individuals or 30% for corporations